**Exhibit99.5**

**ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 2, 2007**

**NOTICE OF ANNUAL MEETING OF SHAREHOLDERS**

**and**

**MANAGEMENT INFORMATION CIRCULAR**

## **March 9, 2007**

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## 

###### **NOTICE OF ANNUAL MEETING OF SHAREHOLDERS**

**NOTICE IS HEREBY GIVEN** that theannual meeting of shareholders of Æterna Zentaris Inc. (the “Corporation” or “ÆternaZentaris”) will be held at Le Centre Sheraton Montreal Hotel, 1201René-Lévesque Boulevard West, Salon Drummond, Montreal, Quebec, on Wednesday,May 2, 2007, at 10:30 a.m. (Montreal time) for the followingpurposes:

1.             to receive theaudited consolidated financial statements of the Corporation for the financialyear ended December 31, 2006, together with the auditors’ report thereon;

2.             to elect directors;

3.             to appoint auditorsand authorize the directors to determine their compensation;

4.             to consider and, ifdeemed advisable, adopting a resolution approving the making of certainamendments to the Corporation’s Stock Option Plan;

5.             to consider and, ifdeemed advisable, adopting a resolution, approving, ratifying and confirmingthe amendment to and restatement of the Corporation’s shareholder rights planadopted by the Corporation’s Board of Directors on March 2, 2007; and

6.             to transact suchother business as may properly come before the meeting.

Therecord date for the determination of shareholders of Æterna Zentaris entitledto receive notice of and to vote at the meeting is March 9, 2007.

Asshareholders of Æterna Zentaris, it is very important that you read thismaterial carefully and vote your shares, either by proxy or in person at themeeting.

Thefollowing pages tell you more about how to exercise your right to vote yourshares and provide additional information relating to the matters to be dealtwith at the meeting.

Byorder of the Board of Directors,

Mario Paradis, CA

CorporateSecretary

Quebec City,Quebec, March 9, 2007

***Shareholders unable to attend the meeting are requested to complete andsign the enclosed form of proxy and return it in the stamped envelope provided.******To be valid, proxies must reach the office ofComputershare Trust Company of Canada, Share Ownership Management, 1500University Street, 7******th Floor, Montreal,Quebec, H3A 3S8, no later than at the close of business on the last businessday preceding the date of the meeting or any adjournment thereof.***

***Æterna Zentaris Inc., 1405 duParc-Technologique Boulevard, Quebec City, Quebec, G1P 4P5***

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**MANAGEMENTINFORMATION CIRCULAR**

**1.****                                      INTRODUCTION**

**This management informationcircular (the “Circular”) is being furnished in connection with thesolicitation of proxies by and on behalf of the management of Æterna ZentarisInc. (the “Corporation” or “Æterna Zentaris”) for use at the annual meeting ofshareholders of the Corporation (the “Meeting”) and any adjournment(s) orpostponement(s) thereof. No person has been authorized to give any informationor make any representation in connection with any matters to be considered atthe Meeting other than those contained in this Circular and, if given or made,any such information or representation must not be relied upon as having beenauthorized.**

In addition to solicitation bymail, employees or agents of the Corporation may solicit proxies by telephoneor by other means. The cost of any such solicitation will be borne entirely bythe Corporation. The Corporation may also reimburse brokers and other personsholding the Corporation’s common shares (the “Common Shares”) in their names,or in the names of nominees, for their costs incurred in sending proxymaterials to beneficial or non-registered owners and obtaining their proxies orvoting instructions.

Information contained in thisCircular is given as of March 9, 2007 unless otherwise specifically stated. Alldollar amounts in the Circular are denominated in Canadian dollars, unlessotherwise indicated.

**2.****                                      INFORMATIONCONCERNING VOTING AT THE MEETING**

## **YourVote is Important**

As a shareholder of theCorporation, it is very important that you read the following information onhow to vote your Common Shares, either by proxy or in person at the Meeting.These securityholder materials are being sent to both registered andnon-registered shareholders of the Corporation. If you are a non-registeredshareholder, and the Corporation or its agent has sent these materials directlyto you, your name and address and information about your holdings of securitieshave been obtained in accordance with applicable securities regulatory requirementsfrom the intermediary holding Common Shares on your behalf. By choosing to sendthese materials directly to registered shareholders and certain non-registeredshareholders, the Corporation or its agent (and not the intermediary holding onyour behalf) has assumed responsibility for (i) delivering these materialsto you, and (ii) executing your proper voting instructions. Please returnyour proxy as specified in this Circular and in the form of proxy.

## **Voting**

You can attend the Meeting oryou can appoint someone else to vote for you as your proxyholder. A shareholderentitled to vote at the Meeting may, by means of a proxy, appoint a proxyholderor one or more alternate proxyholders, who are not required to be shareholders,to attend and act at the Meeting in the manner and to the extent authorized bythe proxy and with the authority conferred by the proxy. Voting by proxy meansthat you are giving the person named on your form of proxy the authority tovote your Common Shares for you at the Meeting or any adjournment thereof.

You can choose from amongthree different ways to vote your Common Shares by proxy:

1.                    by telephone;

2.                    on theInternet; or

3.                    by mail.

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The persons who are named onthe form of proxy are directors or officers of the Corporation and will voteyour shares for you. **You have the right toappoint someone else to be your proxyholder**. If you appoint someoneelse, he or she must attend the Meeting to vote your Common Shares.

## **Howto Vote – Registered Shareholders**

**You are a registered shareholderif your name appears on your share certificate.** If you are not sure whetheryou are a registered shareholder, please contact Computershare Trust Company ofCanada (“Computershare”) by telephone toll-free at 1-800-564-6253 or by e-mailat service@computershare.com.

### **By Proxy**

#### **By Telephone**

Voting by proxy using thetelephone is only available to shareholders located in Canada and the UnitedStates. Call toll-free in Canada 1-866-732-VOTE (8683) and 1-312-588-4290toll-free in the United States from a touchtone telephone and follow theinstructions provided. Your voting instructions are then conveyed by usingtouchtone selections over the telephone.

You will need your 6-digitControl Number. You will find this number on your form of proxy or in the e-mailaddressed to you if you have chosen to receive this Circular electronically.

If you choose the telephone,you cannot appoint any person other than the directors or officers named onyour form of proxy as your proxyholder.

**The cut-off time for votingby telephone is 5:00 p.m. (Eastern daylight time) on Monday, April 30****,****2007.**

#### **On the Internet**

Go to the websitewww.computershare.com/proxy and follow the instructions on the screen. Yourvoting instructions are then conveyed electronically over the Internet.

You will need your 6-digitControl Number. You will find this number on your form of proxy or in thee-mail addressed to you if you have chosen to receive this Circularelectronically.

If you return your proxy viathe Internet, you can appoint a person other than the persons named in the formof proxy as your proxyholder. This person does not have to be a shareholder.Indicate the name of the person you are appointing in the space provided on theform of proxy. Complete your voting instructions, and date and submit the form.Make sure that the person you appoint is aware that he or she has beenappointed and attends the meeting.

**The cut-off time for votingover the Internet is 5:00 p.m. (Eastern daylight time) on Monday, April 30****,****2007.**

#### **By Mail**

Complete your form of proxyand return it in the envelope provided to you or by delivery to one of Computershare’s principal offices in Calgary, Halifax,Montréal, Toronto, Vancouver or Winnipeg**forreceipt before 5:00 p.m. (Eastern daylight time) on April 30, 2007 or with theSecretary of the Meeting prior to commencement of the Meeting on the day of theMeeting or on the day of any adjournment thereof.** A list of addresses for the principaloffices of Computershare is set forth on page 29 of this Circular.

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If you return your proxy bymail, you can appoint a person other than the directors or officers named inthe form of proxy as your proxyholder. This person does not have to be ashareholder. Fill in the name of the person you are appointing in the blankspace provided on the form of proxy. Complete your voting instruction on theform of proxy, and date and sign the form. Make sure that the person youappoint is aware that he or she has been appointed and attends the Meeting.

Please see the section titled “Completingthe Form of Proxy” for more information.

### **In Person at the Meeting**

You do not need to complete orreturn your form of proxy.

You will receive an admissionticket at the Meeting upon registration at the registration desk.

## **Howto Vote – Non-Registered Shareholders**

**The information set forthin this section should be reviewed carefully by the non-registered shareholdersof the Corporation. Shareholders who do not hold their shares in their own nameshould note that only proxies deposited by shareholders who appear on therecords maintained by the Corporation’s registrar and transfer agent asregistered holders of shares will be recognized and acted upon at the Meeting.**

Non-registered shareholdersmay vote shares that are held by their nominees in one of two manners.Applicable securities laws and regulations, including National Instrument54-101 —* Communication**with Beneficial Owners of Securi**t**ies of a Reporting Issuer*, requirenominees of non-registered shareholders to seek their voting instructions inadvance of the Meeting. Non-registered shareholders will receive (or will havereceived) from their nominees either a request for voting instructions or aproxy form for the number of shares held by them. The nominees’ votinginstructions or proxy forms will contain instructions relating to signature andreturn of the document and these instructions should be carefully read andfollowed by non-registered shareholders to ensure that their shares areaccordingly voted at the Meeting.

Non-registered shareholderswho would like their shares to be voted for them must therefore follow thevoting instructions provided by their nominees.

Non-registered shareholderswho wish to vote their shares in person at the Meeting must insert their ownname in the space provided on the request for voting instructions or proxyform, as the case may be, in order to appoint themselves as proxyholder andfollow the signature and return instructions provided by their nominees.Non-registered shareholders who appoint themselves as proxyholders shouldpresent themselves at the Meeting to a representative of Computershare.Non-registered shareholders should not otherwise complete the form sent to themby their nominees as their votes will be taken and counted at the Meeting.

**All references to “shareholders”in this Circular are to registered shareholders unless specifically statedotherwise.**

You are a non-registeredshareholder if your bank, trust company, securities broker or dealer or otherfinancial institution or intermediary (“yournominee”) holds your Common Shares for you. If you are not sure whetheryou are a non-registered shareholder, please contact Computershare by telephonetoll-free at 1-800-564-6253 or by e-mail at service@computershare.com.

### **By Proxy**

Your nominee is required toask for your voting instructions before the Meeting. Please contact yournominee if you did not receive a request for voting instructions in thispackage.

In most cases, non-registeredshareholders will receive a voting instruction form which allows you to provideyour voting instructions on the Internet, by telephone or by mail. You willneed your Control

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Number found on your voting instruction form,if you choose to vote on the Internet or by telephone. Alternatively,non-registered shareholders may complete the voting instruction form and returnit by mail, as directed in the voting instruction form.

### **In Person at the Meeting**

You can vote your CommonShares in person at the Meeting if you have instructed your nominee to appointyou as proxyholder.

To do this, write your name inthe space provided on the voting instruction form and otherwise follow theinstructions of your nominee.

## **Completingthe Form of Proxy**

You can choose to vote “FOR”or “AGAINST” Resolutions 2007-1 (Stock Option Plan amendment) and 2007-2 (Amendedand Restated Shareholder Rights Plan) and “FOR” or “WITHHOLD” with respect tothe election of directors and the appointment of auditors. If you are anon-registered shareholder voting your Common Shares, please follow theinstructions provided in the voting instruction form that you should havereceived together with this Circular.

When you sign the form ofproxy without appointing an alternate proxyholder, you authorize Éric Dupont,Gilles Gagnon and Mario Paradis, respectively the Executive Chairman of theBoard, the President and Chief Executive Officer and the Corporate Secretary ofthe Corporation, to vote your Common Shares for you at the Meeting inaccordance with your instructions.

Management is not aware of anyother matters that will be presented for action at the Meeting. If, however,other matters properly come before the Meeting, the persons designated in theenclosed form of proxy will vote in accordance with their judgment, pursuant tothe discretionary authority conferred by the proxy with respect to suchmatters.

**You have the right toappoint someone other than the management proxy nominees to be yourproxyholder. If you are appointing someone else to vote your Common Shares foryou at the Meeting, fill in the name of the person voting for you in the blankspace provided on the form of proxy.**

If you do not specify how youwant your Common Shares voted, your proxyholder will vote your shares in favourof each item scheduled to come before the Meeting, including all amendments orvariations thereto, and as he or she sees fit on any other matter that mayproperly come before the Meeting.

A proxyholder has the samerights as the shareholder by whom it was appointed to speak at the Meeting inrespect of any matter, to vote by way of ballot at the Meeting and, exceptwhere a proxyholder has conflicting instructions from more than oneshareholder, to vote at the Meeting in respect of any matter by way of any showof hands.

If you are an individualshareholder, you or your authorized attorney must sign the form of proxy. Ifyou are a corporation or other legal entity, an authorized officer or attorneymust sign the form of proxy.

## **Changingyour Vote**

In addition to revocation inany other manner permitted by law, a shareholder giving a proxy and submittingit by mail may revoke it by an instrument in writing executed by theshareholder or the shareholder’s attorney authorized in writing and depositedeither at the Montréal office of the Corporation’s transfer agent,Computershare, located at 7th Floor,1500 University Street, Montréal,Quebec, H3A 3S8, or at the Corporation’s registered office, located at1405 du Parc-Technologique Boulevard, Quebec City, Quebec, G1P 4P5, at any timeup to and including the last business day preceding the day of the Meeting, orany adjournment thereof, at which the proxy is to be used, or with the chair ofthe Meeting on the day of the Meeting, or any adjournment thereof. If thevoting instructions were conveyed by telephone or over the

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Internet, conveying new voting instructions byany of these two means or by mail within the applicable cut-off times willrevoke the prior instructions.

## **VotingRequirements**

Resolutions 2007-1 (StockOption Plan amendment) and 2007-2 (Amended and Restated Shareholder RightsPlan) reproduced at Schedule A to the Circular must be approved by more thanfifty percent (50%) of votes cast at the Meeting by proxy or in person.Computershare****will act as scrutineer at theMeeting and will count and tabulate the votes.

**3.****                                      VOTINGSHARES, QUORUM AND PRINCIPAL SHAREHOLDERS**

**Voting Shares and Quorum**

Asof March 9, 2007, there were 53,179,470 Common Shares issued and outstanding. Shareholders ofrecord on March 9, 2007 are entitled to receive notice of and vote at theMeeting. The list of shareholders entitled to vote at the Meeting will beavailable for inspection on and after March 19,2007 during usual business hours at the Montréal office of the Corporation’stransfer agent, Computershare, located at 7th Floor,1500 University Street, Montréal,Quebec, H3A 3S8, as well as at the Meeting.

A quorum is present at theMeeting if the holders of not less than 20% of the Common Shares are present inperson or represented by proxy, irrespective of the number of shareholdersactually in attendance at the Meeting. If a quorum is present at the opening ofthe Meeting, the shareholders present or represented by proxy may proceed withthe business of the Meeting notwithstanding that a quorum is not presentthroughout the Meeting. If a quorum is not present within thirty (30) minutesof the opening of the Meeting, the shareholders present or represented by proxymay adjourn the Meeting to a fixed time and place but may not transact anyother business.

## **PrincipalShareholders**

Asof March 9, 2007, to the knowledge of the officers and directorsof the Corporation, the only entities that beneficially owned, directly orindirectly, or exercised control or direction over, more than 10% of the votesattached to the Common Shares are indicated in the table below:

 
| **Name of shareholder** | ** ** | **Common Shares** | ** ** | **Total Percentage  of Voting Rights** | ** ** |
|-----------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|
| ** **                        | ** ** | **(#)**                | ** ** | **(%)**                                               | ** ** |
| Solidarity Fund  (QFL)            |       | 9,752,069              |       | 18.34                                                 |       |
|                              | ** ** | ** **             |       |                                                  |       |
| SGF Santé Inc.               |       | 8,810,878              |       | 16.57                                                 |       |

**4.****                                      PRESENTATIONOF THE FINANCIAL STATEMENTS**

The Annual Report including the audited consolidatedfinancial statements of the Corporation for the financial year ended December31, 2006 and the auditors’ report thereon will be submitted at the Meeting.

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**5.****                                      ELECTIONOF DIRECTORS**

**The Corporation’s Articlesprovide that the Board of Directors (the “Board”) of the Corporation shall becomposed of a minimum of five and a maximum of fifteen directors. Directors areelected annually by the shareholders of the Corporation, but the directors mayfrom time to time appoint one or more directors, provided that the total numberof directors so appointed does not exceed one third of the number of directorselected at the last annual meeting of shareholders. Management of theCorporation proposes the eleven persons named in the table appearing on page 7of the Circular (and in the form of proxy or voting instruction form enclosedtogether with this Circular) as candidates for election as directors. Eachelected director will remain in office until termination of the next annualmeeting of the shareholders or until his or her successor is elected orappointed, unless his or her post is vacated earlier. Each of the candidatesproposed by Management of the Corporation is currently a director of theCorporation.**

Under the terms ofa shareholders’ agreement signed on November 12, 1999 between Solidarity Fund(QFL) and the Corporation, Solidarity Fund (QFL) was granted the right todesignate one member of the Board of the Corporation, provided that SolidarityFund (QFL) holds at the relevant time at least 499,999 Common Shares. Likewise,under the terms of contractual agreements among the Corporation, SGF Santé Inc.and Dr. Éric Dupont concerning, among other matters, the election of directors,provided that SGF Santé Inc. holds at least 5% of the Corporation’s issued andoutstanding voting shares, (a) the Corporation will propose for election as adirector of the Corporation, at each annual meeting of the shareholders (i) onecandidate designated by SGF Santé Inc., provided that the candidate receives afavourable recommendation from the Corporate Governance, Nominating and HumanResources Committee, and (ii) one candidate jointly designated by SGF SantéInc. and Dr. Éric Dupont, (b) the Corporation will solicit proxies from itsshareholders for the election of such candidates as directors of theCorporation, and (c) Dr. Éric Dupont will exercise the voting rights attachedto his Common Shares, on any resolution relating to the election of directorsto be submitted to the beneficial holders of any participating shares of theCorporation, in favour of the election of the candidates so designated. In thisrespect and in accordance with the agreements mentioned above, Mr. PierreLaurin and Mr. José P. Dorais are the candidates currently designated bySolidarity Fund (QFL) and SGF Santé Inc., respectively, and are named in thetable appearing on page 7.

**Unless instructions are given to abstain fromvoting with regard to the election of directors, the persons whose names appearon the enclosed form of proxy will vote in favour of the election of the elevennominees whose names are set out in the table appearing on page 7 of theCircular. Management of the Corporation does not foresee that any of thenominees listed below will be unable or, for any reason, unwilling to performhis or her duties as a director. In the event that the foregoing occurs for anyreason, prior to the election, the persons indicated on the enclosed form ofproxy reserve the right to vote for another candidate of their choice unlessotherwise instructed by the shareholder in the form of proxy to abstain fromvoting on the election of directors.**

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** **
| **Name and Place of  Residence** | ** ** | **Principal Occupation**                                                                                                                                                                                 | ** ** | **Director  since** | ** ** | **Number of Common   Shares Held** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|--------------------------------------------------------|------------|
| Marcel Aubut   Quebec, Canada                   |       | Managing  Partner   Heenan Blaikie Aubut (law firm)                                                                                                                                                           |       | 1996                |       | 57,500                                                 |       |
| Stormy Byorum, MBA(1)   New York, USA           |       | Senior  Managing Director   Stephens Cori Capital Advisors   (strategic and financial advisory services   company)                                                                                            |       | 2001                |       | 12,000                                                 |       |
| José P. Dorais  Quebec, Canada             |       | Partner    Miller Thomson Pouliot LLP (law firm)                                                                                                                                                              |       | 2006                |       | —                                                 |       |
| Éric Dupont, PhD(2)   Quebec, Canada       |       | Executive  Chairman of the Board   Æterna Zentaris Inc.                                                                                                                                                  |       | 1991                |       | 3,767,413                                              |       |
| Jürgen Engel   Frankfurt, Germany          |       | Executive  Vice President, Global R&D and Chief   Operating Officer Æterna Zentaris Inc.  Chairman and Managing Director   Zentaris GmbH (a subsidiary of the Corporation)                      |       | 2003                |       | 31,279                                                 |       |
| Jürgen Ernst, MBA(2)   Brussels, Belgium   |       | Vice  Chairman of the Board   Æterna Zentaris Inc.  Corporate Director  Former General Manager   Pharmaceutical Sector of Solvay S.A.  (international chemical and  pharmaceutical group) |       | 2005                |       | 8,850                                                  |       |
| Gilles Gagnon, MBA   Quebec, Canada             |       | President  and Chief Executive Officer   Æterna Zentaris Inc.                                                                                                                                            |       | 2002                |       | 70,617                                                 |       |
| Pierre Laurin, PhD(2)   Quebec, Canada          |       | Executive  in Residence   HEC Montreal   (management faculty of university)                                                                                                                                   |       | 1998                |       | 11,200                                                 |       |
| Gérard Limoges, FCA(1)   Quebec, Canada    |       | Corporate  Director   Former Deputy Chairman of Ernst & Young LLP  Canada                                                                                                                            |       | 2004                |       | 5,000                                                  |       |
| Pierre MacDonald(1)(2)   Quebec, Canada         |       | Chairman  of the Board   Eurocopter Canada Ltd.   (helicopter manufacturer)                                                                                                                                   |       | 2000                |       | 11,500                                                 |       |
| Gerald J. Martin   California, USA              |       | Corporate Director   Former Vice President, Corporate Licensing and   Technology Alliances at Abbott Laboratories Inc.                                                                                        |       | 2006                |       | —                                                 |       |

 

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(1)          Member of the Audit Committee.

(2)          Member of the Corporate Governance, Nominatingand Human Resources Committee.

Mr.Marcel Aubut served as a director of Albums DF Ltée from September 5, 1997 toSeptember 16, 2003. This company became bankrupt on December 6, 2003.

Mr.Pierre Laurin was, from May 1999 to May 2003, a director of MicrocellTelecommunications Inc. (“Microcell”). Microcell entered into a Plan ofReorganization and of Compromise and Arrangement with its creditors andshareholders effective May 1, 2003 pursuant to the *Companies’Creditors Arrangement Act* (Canada). Mr. Laurin was a member of theSpecial Committee of the Board of Directors of Microcell created in connectionwith the foregoing restructuring.

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Mr. Pierre MacDonaldserved as a director of Slater Steel Inc. (“SSI”), a manufacturer of specialtysteel products, from February 1998 to August 2004. SSI and its subsidiariesfiled for creditor protection under the *Companies’ CreditorsArrangement Act* (Canada) and under Chapter 11 of the US BankruptcyCode on June 2, 2003, and they have since conducted an orderly wind-down.

The Corporation does not have any direct informationconcerning shares beneficially owned by the above-mentioned persons orconcerning Common Shares of the Corporation over which such persons exercisecontrol or direction. This information was provided to the Corporation by thedirectors and nominees individually.

**6.****                                      STATEMENTOF EXECUTIVE COMPENSATION**

**A.****                                  Compensationof Outside Directors**

The following describesthe compensation paid to the members of the Corporation’s Board and committeesup until December 31, 2006. Each outside director received an annual baseremuneration of $15,000. In January 2007, the Corporation also granted to eachof its outside directors options to purchase 5,000 Common Shares which will vestover a period of three years. The outside directors also received an attendancefee of $1,500 for each Board meeting attended and a daily compensation of$1,500 for special work designated by the Board of Directors, if any.Attendance fees are reduced to $750 per meeting for a director participating ina Board meeting by telephone, teleconference or any other telecommunicationsdevice. The Vice Chairman of the Board and the Chairs of the Audit Committeeand the Corporate Governance, Nominating and Human Resources Committee receiveadditional annual retainers of $15,000, $20,000 and $15,000, respectively. Inaddition, an attendance fee of $1,000 is paid to each outside directorattending committee meetings, such fee being reduced to $500 for participationby telephone, teleconference or by any other telecommunication device.

In order to offercompetitive compensation and recognize the growing complexity of theiractivities, the Board of Directors, upon the recommendation of the CorporateGovernance, Nominating and Human Resources Committee, has decided to modify thecompensation of the Corporation’s outside directors effective January 1, 2007as follows:

·                           theannual base remuneration has been increased to $25,000;

·                           theattendance fee for attending Board and committee meetings has been increased to$2,000;

·                           theattendance fee for attending Board and committee meetings by telephone,teleconference or any other telecommunications device has been increased to$1,000 per meeting; and

·                           committeemembers will receive an additional annual base remuneration of $5,000 for theAudit Committee and $2,500 for the Corporate Governance, Nominating and HumanResources Committee.

All other conditions remain in place.

During the financial yearended December 31, 2006, the Corporation paid an aggregate amount of $322,191(US$284,094) to all of its outside directors forservices rendered. Outside directors are paid in their home country’s currencyand are reimbursed for travel and other out-of-pocket expenses incurred while attendingBoard or committee meetings.

The number of Board andcommittee meetings held during the year ended December 31, 2006 and theattendance records of Board and committee members are presented in Schedule Bto this Circular, “Statement of Corporate Governance Practices”.

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**B.****                                  Compensationof Executive Officers**

The following table setsforth detailed information on the compensation of the President and ChiefExecutive Officer, the Vice President and Chief Financial Officer and theCorporation’s three other most highly compensated executive officers (includingthe Executive Chairman of the Board) (collectively, the “Named ExecutiveOfficers”), for services rendered in all capacities during the financial yearsended December 31, 2006, 2005 and 2004.

**SUMMARY COMPENSATION TABLE**
|                                          | ** ** | **Annual Compensation**                                       | ** ** | **Long-term Compensation** | ** ** | ** **  | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------|------------|-------------|------------|
| ** **                               | ** ** | **(all amounts are in Canadian dollars)** | ** ** | **Awards**                      | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| **Name and  principal  occupation** | ** ** | **Year**                                                           | ** ** | **Salary**                      | ** ** | **Bonus**   | ** ** | **Other Annual  Compensation(1)** | ** ** | **Securities   under   Options   Granted(2)** | ** ** | **Shares or   Units Subject   to Resale   Restrictions** | ** ** | **LTIP   Payouts** | ** ** | **All Other  Benefits** | ** ** |
| ** **                               | ** ** | ** **                                                         | ** ** | **($)**                         | ** ** | **($)**     | ** ** | **($)** | ** ** | **(#)** | ** ** | **($)** | ** ** | **($)** | ** ** | **($)** | ** ** |
| Gilles Gagnon                            |       | 2006                                                               |       | 300,000                         |       | 100,000     |       | — |   | — |   | — |   | — |   | — |   |
| President and Chief                      |       | 2005                                                               |       | 300,000                         |       | 112,500     |       | — |   | 75,000 |   | — |   | — |   | — |   |
| Executive Officer                        |       | 2004                                                               |       | 250,000                         |       | 150,000     |       | — |   | 110,000 |   | — |   | — |   | — |   |
|                                     |       |                                                               |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Dennis Turpin                            |       | 2006                                                               |       | 175,000                         |       | 100,000     |       | — |   | — |   | — |   | — |   | — |   |
| Vice President and                       |       | 2005                                                               |       | 175,000                         |       | 75,000      |       | — |   | 50,000 |   | — |   | — |   | — |   |
| Chief Financial Officer                  |       | 2004                                                               |       | 160,000                         |       | 100,000     |       | — |   | 90,000 |   | — |   | — |   | — |   |
|                                     |       |                                                               |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Jürgen Engel(3)                     |       | 2006                                                               |       | 320,333                         |       | 106,778     |       | — |   | — |   | — |   | — |   | — |   |
| Executive Vice President,                |       | 2005                                                               |       | 339,705                         |       | 84,926      |       | — |   | 50,000 |   | — |   | — |   | — |   |
| Global R&D and Chief                 |       | 2004                                                               |       | 339,549                         |       | 121,268     |       | — |   | 100,000 |   | — |   | — |   | — |   |
| Operating Officer                        |       |                                                               |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
|                                     |       |                                                               |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Manfred Peukert(3)                       |       | 2006                                                               |       | 205,013                         |       | 79,727      |       | — |   | — |   | — |   | — |   | — |   |
| Vice President Medical                   |       | 2005                                                               |       | 217,411                         |       | 81,491      |       | — |   | 30,000 |   | — |   | — |   | — |   |
| Affairs                                  |       | 2004                                                               |       | 232,499                         |       | 29,104      |       | — |   | 50,000 |   | — |   | — |   | — |   |
|                                     |       |                                                               |       |                            |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Éric Dupont                         |       | 2006                                                               |       | 250,000                         |       | —      |       | — |   | — |   | — |   | — |   | — |   |
| Executive Chairman of                    |       | 2005                                                               |       | 250,000                         |       | —      |       | — |   | 60,000 |   | — |   | — |   | — |   |
| the Board                                |       | 2004                                                               |       | 252,083                         |       | —      |       | — |   | 90,000 |   | — |   | — |   | — |   |

 

9

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(1)          Perquisites andother personal benefits that do not exceed the lesser of $50,000 or 10% ofannual salary and bonuses are not included in this column.

(2)          Usually stock options are granted to NamedExecutive Officers in December of each year. In 2006, the grant of stockoptions to the Corporation’s Named Executive Officers (an aggregate amount of200,000) was postponed until January 2007 due to the payment of the specialdistribution of Subordinate Voting Shares of the capital of AtriumBiotechnologies Inc. (“Atrium”) to the Corporation’s shareholders on January 2,2007.

(3)          Amounts actually paid to such Named ExecutiveOfficers in Euros and converted to Canadian dollars at an average exchange rateof CDN$1.00 to €0.7024 in 2005, €0.6623 in 2005 and €0.6185 in 2004.

During the financial yearended December 31, 2006, the Corporation paid an aggregate amount of $2,427,574 (US$2,140,529) and granted an aggregatenumber of 30,000 stock options to all of its executive officers (excludingoutside directors).

**C.****                                  StockOption Plan Information**

The Corporation has established a stock option planfor its directors, executive officers, employees and persons providingcontinuous services to the Corporation (the “Stock Option Plan”) in order toattract and retain such persons, who will be motivated to work towards ensuringthe Corporation’s success. The Board has full and complete authority tointerpret the Stock Option Plan, to establish applicable rules and regulationsapplying to it and to make all other determinations it deems necessary oruseful for the administration of the Stock Option Plan, provided that suchinterpretations, rules, regulations and determinations are consistent with therules of all stock exchanges and quotation systems on which the securities ofthe Corporation are then traded and with all relevant securities legislation.Individuals eligible to participate under the Stock Option Plan will bedetermined by the Board of Directors or the Corporate Governance, Nominatingand Human Resources Committee, as the case may be.

Options granted under the Stock Option Plan may beexercised at any time within a maximum period of ten years following the dateof their grant. The Board of Directors or the Corporate Governance, Nominatingand Human Resources Committee, as the case may be, designates, at itsdiscretion, the individuals to whom stock options are granted under the StockOption Plan and determines the number of Common Shares covered by each of suchoptions, the grant date, the exercise price of each option, the expiry date,the vesting schedule and any other matter relating thereto, in each case inaccordance with the applicable rules and regulations of the securitiesregulatory authorities. The price at which the Common Shares may be purchasedmay not be lower than the greater of the closing prices of the Common Shares onthe Toronto Stock Exchange (the “TSX”) and the NASDAQ Global Market (the “NASDAQ”)on the last trading day preceding the date of grant of the option. Optionsgranted under the Stock Option Plan generally vest in equal tranches over athree-year period (one-third each year, starting on the first anniversary ofthe grant date) or as otherwise determined by the Board of Directors or theCorporate Governance, Nominating and Human Resources Committee.

Unlessthe Board of Directors or the Corporate Governance, Nominating and HumanResources Committee decides otherwise, optionholders cease to be entitled toexercise their options under the Stock Option Plan: (i) immediately, in theevent an optionholder who is an officer or employee of the Corporation resignsor voluntarily leaves his or her employment with the Corporation or one of itssubsidiaries or the employment with the Corporation or one of its subsidiariesis terminated with cause and, in the case of an optionee who is a non-employeedirector or member of the Scientific Board of the Corporation or one of itssubsidiaries, the date on which such optionee ceases to be a member of therelevant Board; (ii) six months following the date on which employment with theCorporation or any of its subsidiaries is terminated as a result of the deathof an optionholder who is an officer or employee of the Corporationand, in the case of an optionee who is anon-employee director or member of the Scientific Board of the Corporation orone of its subsidiaries, six months following the date on which such optioneeceases to be a member of the relevant Board; (iii) 30 days following the dateon which an optionholder’s employment with the Corporation or any of itssubsidiaries is terminated for a reason other than those mentioned in (i) or(ii) above including, without limitation, upon the disability, long-termillness, retirement or early retirement of the optionholder; and (iv) where theoptionholder is a service supplier, 30 days following the date on which suchoptionholder ceases to act as such, for any cause or reason.

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Optionholders may not assign their options (nor anyinterest therein) other than by will or in accordance with the applicable lawsof estates and succession.

In theevent that, at any time, an offer to purchase is made to holders of all CommonShares, notice of such offer shall be given by the Corporation to each optioneeand all unexercised options will become exercisable immediately at theirrespective exercise prices, but only to the extent necessary to enableoptionees to tender their Common Shares in response to such offer.

The maximum number of Common Shares that may be issuedunder the Stock Option Plan is currently 4,253,277, which currently representsapproximately 8% of all issued and outstanding Common Shares. Under the StockOption Plan, no single optionholder may currently hold options to purchase morethan 5% of the Corporation’s issued and outstanding Common Shares.

OnMarch 2, 2007, the Board of Directors approved, subject to receiving theapprovals of the TSX and the Corporation’s shareholders, the making of certainamendments to the Stock Option Plan, including: 1) extending the exerciseperiod for options that would otherwise expire during a trading prohibitionperiod or within seven (7) business days immediately after a tradingprohibition period imposed by the Corporation, to a date which is seven (7)business days after the last day of such trading prohibition period; 2)amending the Stock Option Plan’s amending provision following the changes madeby the TSX regarding the requirements that apply to security-based compensationarrangements; and 3) changing the maximum number of Common Shares issuableunder the Stock Option Plan from a fixed number to a fixed percentage of theissued and outstanding Common Shares. The TSX has conditionally approved theseamendments to the Stock Option Plan and shareholders will be asked at theMeeting to adopt Resolution 2007-1 approving such amendments. See Item 11 ofthe Circular, “Amendments to the Stock Option Plan”. The Board of Directorsalso approved, on March 2, 2007, certain amendments to the Stock Option Plan ofa “housekeeping” or clerical nature, and amendments to comply with TSX policieswhich provide that the number of securities issuable to insiders, at any time,under all security-based compensation arrangements cannot exceed 10% of theissued and outstanding Common Shares and that the number of securities issuedto insiders, within any one-year period, under all security-based compensationarrangements, cannot exceed 10% of the issued and outstanding Common Shares(the “10% Insider Limit”).  Theseamendments have been approved by the TSX but are not subject to shareholderapproval.

***Options granted during the mostrecently completed financial year***

There were no options granted to the Named ExecutiveOfficers during the financial year ended December 31, 2006. The aggregatenumber of Common Shares covered by options granted to the Corporation’sofficers and employees other than the Named Executives Officers during suchperiod was 45,000 at prices varying from $6.09 to $7.06 per Common Share,establishing at 3,490,092 the total number of Common Shares covered by optionsgranted and outstanding pursuant to the Stock Option Plan as at December 31,2006, which represents 6.6% of the total number of issued and outstandingCommon Shares.

***Optionsexercised during the most recently completed financial year and financialyear-end option values***

Thefollowing table summarizes for each of the Named Executive Officers the numberof Common Shares acquired on options exercised, if any, during the financialyear ended December 31, 2006, the aggregate value realized uponexercise, the total number of Common Shares covered by unexercised options, ifany, held at December 31, 2006, and the value of such unexercised options as atthe same date. During the financial year ended December 31, 2006, an aggregateof 22,000 options were exercised at prices varying from $3.76 and $5.70 by alloptionholders under the Stock Option Plan.

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| **Name**            | ** ** | **Common Shares  Acquired on  Exercise  (#)** | ** ** | **Aggregate Value  Realized  ($)** | ** ** | **Unexercised Options  at FY-end 2006  (#)  Exercisable/  Unexercisable** | ** ** | **Value of Unexercised  In-the-Money Options at  FY-end 2006 (1)  ($)  Exercisable/  Unexercisable** | ** ** |
|---------------------|------------|---------------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|
| Gilles Gagnon,  CEO |       | —                                                  |       | —                                  |       | 328,334 / 86,666                                                                         |       | 481,750 / 59,500                                                                                                                   |       |
| Dennis Turpin,  CFO |       | —                                                  |       | —                                  |       | 306,666 / 63,334                                                                         |       | 320,833 / 39,667                                                                                                                   |       |
| Jürgen Engel   |       | —                                                  |       | —                                  |       | 203,333 / 66,667                                                                         |       | 336,033 / 39,667                                                                                                                   |       |
| Manfred Peukert     |       | —                                                  |       | —                                  |       | 78,334 / 36,666                                                                          |       | 105,850 / 23,800                                                                                                                   |       |
| Éric Dupont    |       | —                                                  |       | —                                  |       | 360,000 / 70,000                                                                         |       | 403,300 / 47,600                                                                                                                   |       |

 

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(1)              The value of anunexercised in-the-money option at financial year-end is the difference betweenthe exercise price of the option and the closing price of a Common Share on theTSX on December 31, 2006, which was $4.72. On February 2, 2007, the TSXdefinitively approved an equitable adjustment to all unexercised optionsoutstanding pursuant to the Stock Option Plan in order to reflect the one-timespecial distribution in kind of all of the Corporation’s 11,052,996 SubordinateVoting Shares of the capital of Atrium distributed to the Corporation’sshareholders on a *pro rata*basis. This specialdistribution was completed on January 2, 2007, although the “ex-distribution”date in respect thereof was December 27, 2006. The adjustment was a reductionin the exercise price of all outstanding stock options of $2.02 per CommonShare.

These values havenot been and may never be realized. The options have not been and may never beexercised; and actual gains, if any, upon exercise will depend upon the valueof the Common Shares on the date of the exercise. There can be no assurancethat these values will ever be realized. Values of unexercised options arebased on exercise prices varying from $1.74 to $3.94 at the specific grantdates, as applicable and as equitably adjusted in connection with theCorporation’s special distribution of Subordinate Voting Shares of the capitalof Atrium.

**D.****                                  Pension Plan**

Two of the Corporation’s Named ExecutiveOfficers, namely Prof. Dr. Jürgen Engel and Dr. Manfred Peukert,participate in a non-contributory defined benefit pension plan. Benefitspayable under this plan correspond to 40% of the executive officer’s averagesalary of the last twelve (12) months during the first five working years afterinitial participation in this plan and increase by 0.4% for each additionalyear of employment.

The normal retirement age is 65 years, butearly retirement in accordance with Germany’s social pension insurance ispossible without reduction of the benefit. The following table shows totalannual pension benefits payable pursuant to this plan. Upon the death of aparticipant, the surviving spouse and/or children of the participant will beentitled to a benefit equal to 60% of the benefits to which such participantwas entitled. All benefits payable under this plan are in addition to Germangovernmental social security benefits. Only basic salary is taken intoconsideration in calculating pension benefits.

**PensionPlan Table**
| ** **                              | ** ** | **Years of Service** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|
| **Average Remuneration ($)*** | ** ** | **15**                         | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** | **35** | ** ** |
| 200,000                                 |       | $   88,000      |       | $   92,000 |   | $   96,000 |   | $ 100,000 |   | $ 104,000 |   |
| 300,000                                 |       | $ 132,000                 |       | $ 138,000 |   | $ 144,000 |   | $ 150,000 |   | $ 156,000 |   |
| 400,000                                 |       | $ 176,000                 |       | $ 184,000 |   | $ 192,000 |   | $ 200,000 |   | $ 208,000 |   |
| 500,000                                 |       | $ 220,000                 |       | $ 230,000 |   | $ 240,000 |   | $ 250,000 |   | $ 260,000 |   |

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*                 Remunerationrefers to annual basic salary.

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Years of creditedservice as at December 31, 2006 for the Corporation’s two Named ExecutiveOfficers who participate in this plan are as indicated below:
| Jürgen Engel: |   | 30 years and 4 months |
|--------------------|--------|-----------------------|
| Manfred Peukert:   |   | 30 years and 4 months |

 

**E.****                                    Employmentand Change of Control Agreements**

The Corporation and/or its subsidiaries have enteredinto employment agreements (the “Employment Agreements”) with each of the NamedExecutive Officers. The Employment Agreements provide that the Corporation willpay the executives a base salary, an annual bonus and stock options which willbe reviewed annually in accordance with the Corporation’s policies. TheEmployment Agreements have an indefinite term, except for Prof. Dr. Engel,whose employment agreement is for a term of five years expiring in June 2008.

In addition, the Corporation has entered into changeof control agreements (the “Change of Control Agreements”) with two of theNamed Executive Officers. Under such agreements, if a change of control (asdefined in the Change of Control Agreements) occurs and the Corporationterminates the employment of the executive without cause, or if the executiveterminates his employment for good reason, then the executive will be entitledto receive a lump sum payment, less statutory deductions, of the equivalent oftwenty-four (24) months in the case of Mr. Gagnon and eighteen (18) months inthe case of Mr. Turpin of i) their annual base salary, ii) the maximum amountof their bonus, and iii) the benefits, calculated on a yearly basis, includingcar allowances, but excluding operating costs and excluding any stock optionswhich were held by such executive at the time of termination of employment.

**F.****                                    Reporton Executive Compensation**

***Composition of the CorporateGovernance, Nominating and Human Resources Committee***

On December 31, 2006, the Corporate Governance,Nominating and Human Resources Committee (for the purposes of this section 6.Fof the Circular, the “Committee”) was composed of four directors, namelyDr. Éric Dupont, Mr. Jürgen Ernst, Mr. Pierre Laurin and Mr. PierreMacDonald (Chairman).

***Mandate of the Committee***

The mandate of the Committee (attached as Schedule Eto this Circular) is to (i) assist the Board in developing the Corporation’sapproach to corporate governance issues, (ii) propose new Board nominees, and(iii) assess the effectiveness of the Board and its committees, theirrespective chairs and individual directors. This committee also assists theBoard in discharging its responsibilities relating to executive and other humanresources hiring, assessment, compensation and succession planning matters.

***ExecutiveCompensation Policy***

An executive compensation policy has been establishedto acknowledge and reward the contributions of the executive officers to theCorporation’s success and to ensure competitive compensation, in order that theCorporation may benefit from the expertise required to pursue its objectives.

In accordance with this policy, the compensation ofthe Corporation’s executive officers is based on three principal elements: (i)basic salary; (ii) performance bonuses; and (iii) the award of stock options.Each component is established with comparable companies in the North Americanbiopharmaceutical industry with which the Corporation competes for talent. Inaddition, the policy is intended to align the executives’ interests with thoseof the Corporation’s shareholders and rewards superior performance.Incentive-based compensation is granted on the basis of criteria approved bythe Committee.

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***Basic Salary***

Basic salary is established according to the criteriaset forth above and is intended to align with the median of those paid in thecomparator group. They are reviewed annually by the Committee.

***Short-term Incentive Compensation***

The short-term incentive plan sets out the allocationof incentive awards based on the financial results, the achievement of theCorporation’s product development and strategic objectives, and the Corporation’sreturn on investment. These objectives are set at the beginning of eachfinancial year as part of the revision of corporate strategies.

In the case of executive officers, a program isdesigned to maximize corporate and individual performance by establishingspecific operational and financial goals and to provide financial incentives toexecutive officers based on their level of achievement of these goals. The grantingof cash incentives require Committee and Board approval and are based upon anassessment of each individual’s performance, as well as the performance of theCorporation.

***Long-term Compensation ofExecutive Officers***

The long-term component of the compensation of theCorporation’s executive officers is based mainly on the Stock Option Plan,which permits the granting of a number of options that varies in accordancewith the contribution of the officers and their responsibilities. To encourageretention and focus management on developing and successfully implementing thecontinuing growth strategy of the Corporation, stock options generally vestover a period of three years. Usually stock options are granted to executiveofficers in December of each year. In 2006, the grant of stock options to theCorporation’s executive officers was postponed until January 2007 due to thepayment of the special distribution of Atrium’s Subordinate Voting Shares tothe Corporation’s shareholders on January 2, 2007.

***Control and Revision of theCompensation Plan***

The Committee must ensure that the compensation of theCorporation’s executive officers is consistent with the overall compensationpolicy of the Corporation. The relative situation of the Corporation withregard to compensation is determined annually by means of studies, with respectto a reference market, composed of comparable businesses. Internal equityanalyses are also conducted in order to make the required adjustments.

***Compensationof the President and Chief Executive Officer***

The compensation of the President and Chief ExecutiveOfficer is along the lines of the Corporation’s policy on managementcompensation. The President and Chief Executive Officer’s employment agreementalso contains a non-competition clause but does not provide for any specificterms or modalities of remuneration.

In 2006, the President and Chief Executive Officerreceived a bonus pursuant to the Corporation’s short-term incentive plan. Theannual bonus paid to the Chief Executive Officer in 2006 reflected hisperformance in the context of Corporation’s objectives, which were reviewed bythe Committee for the Chief Executive Officer and the senior executivemanagement of the Corporation for the 2006 fiscal year. The annual bonus paidin 2006 reflected the advancement of the Corporation’s product pipeline as wellas its performance in relation to strategic objectives, business development,the Corporation’s return on investment and budgetary objectives established bythe Committee for the Chief Executive Officer and the senior executivemanagement team for the 2006 fiscal year.

***Conclusion***

In accordance with the Corporation’s executivecompensation policy, a significant portion of the compensation of its executiveofficers is tied to the performance of the Corporation, the responsibilitiesinherent in their duties and, in particular, the performance of the Corporation’spublicly traded Common Shares and their long-term appreciation. The Committeereviews the compensation programs of the 

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executive officers annually in order to ensure theircompetitiveness and compliance with the objectives, values and strategies ofthe Corporation.

If the circumstances so require, the Committee mayrecommend employment conditions that are different from the policies in effectas well as the execution of non-standard employment contracts by theCorporation.

By the Corporate Governance, Nominating and HumanResources Committee:

Pierre MacDonald,Chairman

Éric Dupont

Jürgen Ernst

Pierre Laurin

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**7.****                                      PERFORMANCEGRAPH**

OnDecember 31, 2006, the closing price of a Common Share on the TSX was $4.72.The following graph shows the cumulative return of a $100 investment in theCommon Shares made on December 31, 2001 on the TSX, compared with the total returnof the S&P/TSX Composite Index for each financial year shown on this graph.

****

On May 28, 2004, the Corporation’s former Subordinate Voting Shares werechanged, on a one-for-one basis, into an equal number of new Common Shares. OnJanuary 2, 2007, the Corporation effected a one-time special distribution inkind of all of its 11,052,996 Subordinate Voting Shares of the capital ofAtrium on a *pro rata*basis to its shareholders. The “ex-distribution”date for the special distribution was December 27, 2006.

**8.****                                      SECURITY-BASEDCOMPENSATION ARRANGEMENTS**

**A.****                                  SecuritiesAuthorized for Issuance under Equity Compensation Plans**

The following table setsforth, as at December 31, 2006, the information with respect to all of theCorporation’s compensation plans pursuant to which equity securities of theCorporation are authorized for issuance:
| **Plan Category**                                     | ** ** | **(a)  Number of securities to  be issued upon exercise  of outstanding options,   warrants and rights** | ** ** | **(b)   Weighted-average   exercise price of   outstanding options,   warrants and rights (1)  ($)** | ** ** | **(c)  Number of securities   remaining available for   further issuance under   equity compensation   plans (excluding   securities reflected in   column (a)** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  plans approved by securityholders     |       | 3,490,092                                                                                                                                                       |       | 4.00                                                                                                                                                   |       | 773,185                                                                                                                                                                                                                                               |       |
| Equity compensation  plans not approved by securityholders |       | —                                                                                                                                                          |       | —                                                                                                                                                 |       | —                                                                                                                                                                                                                                                |       |
| **Total:**                                                 |       | 3,490,092                                                                                                                                                       |       | 4.00                                                                                                                                                   |       | 773,185                                                                                                                                                                                                                                               |       |

 

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(1):        On February 2,2007, the TSX definitively approved an equitable adjustment to all unexercisedoptions outstanding pursuant to the Stock Option Plan in order to reflect theone-time special distribution in kind of all of the Corporation’s 11,052,996Subordinate Voting Shares of the capital of Atrium distributed to theCorporation’s shareholders on a *pro rata*basis.This special distribution was completed on January 2, 2007, although the “ex-distribution”date in respect thereof was December 27, 2006. The adjustment was a reductionin the exercise price of all outstanding stock options of $2.02 per CommonShare.

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OnJanuary 4, 2007, the Board of Directors approved the granting of an aggregateof 410,000 options to the Corporation’s directors, executive officers andcertain key employees, details of which will be provided in the Corporation’smanagement information circular that will be prepared in connection with the2008 annual meeting of shareholders.

**B.****                                  PrincipalTerms of the Corporation’s Security-Based Compensation Arrangements and OtherRequired Disclosure**

EffectiveJanuary 1, 2005, companies listed on the TSX are required to disclose, on anannual basis, in their information (or management proxy) circulars or otherannual disclosure documents distributed to all security holders, the terms oftheir security-based compensation arrangements and any amendments adopted tosuch arrangements during the most recently completed financial year. Under therules of the TSX Company Manual, security-based compensation arrangementsinclude, for example, stock option plans, stock purchase plans where the listedissuer provides financial assistance or where the listed issuer matches thewhole or a portion of the securities being purchased, and any othercompensation or incentive mechanism involving the issuance or potentialissuance of securities of the listed issuer. In general, arrangements or plansthat do not involve the issuance from treasury or potential issuance fromtreasury of securities of the listed issuer are not security-based compensationarrangements for the purposes of the TSX Company Manual rules. The Corporationcurrently has in place only one such security-based compensation arrangement,namely its Stock Option Plan, the principal terms of which are described atSection 6.C of this Circular under the heading “STATEMENT OF EXECUTIVECOMPENSATION — Stock Option Plan Information”.

Thetable below indicates, the number of Common Shares (i) which were authorizedfor issuance as of February 26, 2004, (ii) issuable under outstanding stockoptions as at March 9, 2007, (iii) issued pursuant to the exercise of stockoptions under the Stock Option Plan since February 26, 2004 and (iv) remainingavailable for issuance under the Stock Option Plan as at March 9, 2007:
| Common Shares under Stock Option   Plan:                                                           | ** ** | **Number of  Common Shares** | ** ** | **As a Percentage  of all Currently  Issued and  Outstanding  Common Shares** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|
| Total Authorized  for Issuance as of February 26, 2004:                                                                     |       | 4,543,744                              |       | 8.54                                                                                                        | %          |
| ·issuable under outstanding stock  options (including stock options granted by the Corporation after January 1,  2007) |       | 3,880,092                              |       | 7.30                                                                                                        | %          |
| ·issued pursuant to the exercise of  stock options since February 26, 2004                                             |       | 290,467                                |       | 0.55                                                                                                        | %          |
| ·remaining  available for issuance                                                                                     |       | 373,185                                |       | 0.70                                                                                                        | %          |

 

**9.****                                      STATEMENTOF CORPORATE GOVERNANCE PRACTICES**

In 2005, the Canadian Securities Administrators (the “CSA”)adopted Multilateral Instrument 58-101 - *Disclosureof Corporate Governance Practices* (the “CSA Disclosure Instrument”)and National Policy 58-201 - *Corporate GovernanceGuidelines* (the “CSA Governance Policy”). The CSA Governance Policyprovides guidance on governance practices for Canadian issuers. The CSADisclosure Instrument requires issuers to make certain specified disclosureregarding their governance practices. The Board considers good corporategovernance to be important to the effective operations of the Corporation. TheCorporate Governance, Nominating and Human Resources Committee makesrecommendations regarding the compliance of the Corporation’s practices withthe CSA Governance Policy and oversees 

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disclosure obligations related thereto. The Committeeproposes changes to the Corporation’s corporate governance practices and, whereapplicable, amends such governance practices from time to time.

Pursuant to the requirements of the CSA DisclosureInstrument, the Corporation sets out in Schedule B to this Circular the disclosurerequired by the CSA Disclosure Instrument (which are set out in Form 58-101F1of the Instrument) and provides a response to each item, which togetherdescribe how the Corporation has integrated these “best practices” of corporategovernance.

**10.****                               APPOINTMENTOF AUDITORS AND AUDIT COMMITTEE DISCLOSURE**

**A.****                                  Appointmentof Auditors**

TheBoard proposes that PricewaterhouseCoopers LLP, CharteredAccountants, be appointed as auditors of the Corporation and that the directorsof the Corporation be authorized to determine their compensation upon therecommendation of the Audit Committee. PricewaterhouseCoopers LLP haveacted as auditors of the Corporation since the financial year ended December31, 1993.

Unless instructed to abstain from voting with regardto the appointment of auditors, the persons whose names appear on the enclosedform of proxy will vote in favour of the appointment of PricewaterhouseCoopersLLP and authorizing the directors of the Corporation to determine theircompensation.

**B.****                                  AuditCommittee Disclosure**

Multilateral Instrument 52-110— *Audit Committees* (“MI 52-110”)requires issuers to disclose in their annual information forms certaininformation with respect to the existence, charter, composition, and educationand experience of the members of their Audit Committees, as well as all feespaid to external auditors. The Corporation is including such requireddisclosure with respect to its Audit Committee in both this Circular and itsAnnual Information Form. The Audit Committee Charter is attached asSchedule D to this Circular and is also accessible on theCorporation’s Web site at *www.aeternazentaris.com*.

***Compositionof the Audit Committee***

Ms. Stormy Byorum, Mr. GérardLimoges, FCA, who is the Chair of the Committee, andMr. Pierre MacDonald are the members of the Corporation’s AuditCommittee, each of whom is independent andfinancially literate within the meaning of MI 52-110.

***Education and Relevant Experience***

The education and relevant experience of each of themembers of the Audit Committee are described below.

**Stormy Byorum** — Ms. Byorum is currently Senior ManagingDirector of Stephens Cori Capital Advisors, a strategic and financial advisoryservices company. Before 1996, Ms. Byorum held various positions at Citicorp.Ms. Byorum holds a Master’s of Business Administration (MBA) degree fromthe University of Pennsylvania.

**Gérard Limoges, FCA** — Mr.Limoges served as the Deputy Chairman of Ernst & Young LLP Canada until his retirement in September1999. After a career of 37 years with Ernst & Young, Mr. Limoges has beendevoting his time as a director of a number of companies. Mr. Limoges began hiscareer with Ernst & Young in Montreal in 1962. After graduating from theManagement School of *Université de Montréal(HEC Montréal)* in 1966, he became a chartered accountant and partnerof Ernst & Young in 1971.

**PierreMacDonald** — Mr. MacDonald was Vice President of James BayEnergy Corporation where he was responsible for administration, finance, internalaudit and information systems. He subsequently was the Senior Vice Presidentfor Eastern Canada for Bank of Montreal, a position which involved the reviewand evaluation of the financial statements and creditworthiness of borrowers ina wide variety of industries. He

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thenbecame Vice Chairman of the Treasury Board of the Government of Quebec. Mr.MacDonald served as the Chairman of the Audit Committee of Teleglobe Inc. forsix years. He recently completed a term of six years as Chairman of the RiskManagement Committee and member of the Audit Committee of the ExportDevelopment Corporation. Mr. MacDonald received Bachelor of Arts, Bachelor ofCommerce and Masters of Commerce degrees from Laval University in Quebec.

***Pre-Approval Policies and Procedures***

Form 52-110F1 requires theCorporation to disclose whether its Audit Committee has adopted specificpolicies and procedures for the engagement of non-audit services and to preparea summary of these policies and procedures. The mandate of the Audit Committee(attached as Schedule D to this Circular) provides that it is such committee’sresponsibility to approve all audit engagement fees and terms as well asreviewing policies for the provision of non-audit services by the externalauditors and, when required, the framework for pre-approval of such services.The Audit Committee delegates to its Chairman the pre-approval of suchnon-audit fees.

***External Auditor Service Fees***

Inaddition to performing the audit of the Corporation’s consolidated financialstatements and its subsidiaries, PricewaterhouseCoopers LLP provided other services to the Corporation and itssubsidiaries and billed the Corporation and its subsidiaries the following feesfor each of the Corporation’s two most recently completed financial years. Feesfor the financial year ended December 31, 2006 exclude all such fees billed byPricewaterhouseCoopers LLP to the Corporation’s former subsidiary, Atrium,since, on October 18, 2006, the Corporation initiated the divesture of itsinterest in Atrium upon closing of a secondary offering and completed thespin-off by distributing its remaining investment in Atrium to all shareholderson January 2, 2007.

 
| **Fees**               | ** ** | **Financial Year Ended  December 31, 2006** | ** ** | **Financial Year Ended  December 31, 2005** | ** ** |
|------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Audit Fees(1)          |       | 252,084                                                         |       | 576,757                                                         |       |
| Audit-Related  Fees(2) |       | 149,873                                                         |       | 10,220                                                          |       |
| Tax Fees(3)            |       | 29,084                                                          |       | 181,029                                                         |       |
| All Other Fees(4)      |       | 56,753                                                          |       | 193,554                                                         | (5)        |
| **Total  Fees:**       | ** ** | **487,794**                                                     | ** ** | **961,560**                                                     | ** ** |

 

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(1)          Refers to the aggregate fees billed by the Corporation’s externalauditor for audit services.

(2)          Refers to the aggregate fees billed for assurance and related servicesby the Corporation’s external auditor that are reasonably related to theperformance of the audit or review of the Corporation’s financial statementsand are not reported under (1) above, including professional services renderedby the Corporation’s external auditor for accounting consultations on proposedtransactions, and consultations related to accounting and reporting standards.

(3)          Refers to the aggregate fees billed for professional services renderedby the Corporation’s external auditor for tax compliance, tax advice and taxplanning.

(4)          Refers to the aggregate fees billed for products and services providedby the Corporation’s external auditor, other than the services reported under(1), (2) and (3) above.

(5)          These fees were primarily incurred in connection with the preparation ofa prospectus filed by the Corporation’s subsidiary, Atrium, as part of itsinitial public offering in April 2005.

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**11.****                               AMENDMENTSTO THE STOCK OPTION PLAN**

At the Meeting, shareholders will be asked to consider and, if deemedadvisable, to adopt Resolution 2007-1, a copy of which is reproduced atSchedule A to this Circular, ratifying and approving certain amendments to theStock Option Plan, which the Corporation’s directors unanimously approved onMarch 2, 2007, subject to obtaining shareholder and regulatory approval.

In1995, shareholder and regulatory approval was obtained to implement the StockOption Plan, with subsequent amendments approved by shareholders and the TSX in1997, 1999, 2000, 2001, 2002, 2003 and 2004, in each case in order to increasethe maximum number of Common Shares issuable under the Stock Option Plan. Thepurpose of the Stock Option Plan is to provide compensation incentives toselected employees that encourage alignment with shareholders and enhance theCorporation’s ability to attract, retain and motivate qualified personnel.Management is of the view that the Stock Option Plan contributes to the overallsuccess of the Corporation.

OnMarch 2, 2007, the Board of Directors approved, subject to receiving theapprovals of the TSX and the shareholders of the Corporation: (i) changing themaximum number of Common Shares issuable under the Stock Option Plan from a fixednumber to a fixed percentage of the issued and outstanding Common Shares of theCorporation; (ii) amending the Stock Option Plan’s amending provision followingchanges made by the TSX regarding the requirements that apply to security-basedcompensation arrangements; and (iii) extending by seven (7) business days theexercise period for options that would otherwise expire during a tradingprohibition period, as determined pursuant to the Corporation’s informationpolicy. In making the decision to amend the Stock Option Plan, the CorporateGovernance, Nominating and Human Resources Committee and the Board of Directorsconsidered a number of factors, including the number of options currentlyoutstanding under the Plan, the Corporation’s human resources requirements,competitive benchmarks and the anticipated need to grant options in the future.Based on a review of each of these factors, the directors have unanimouslydetermined that the proposed changes are both reasonable and in the bestinterests of the Corporation.

***Maximum Number of CommonShares Issuable***

TheCorporation proposes to change the maximum number of Common Shares issuableunder the Stock Option Plan from a fixed number (currently 4,543,744 CommonShares) to a maximum of 10% of the total number of Common Shares issued andoutstanding at any given time (the “New Maximum”). The proposed New Maximumwill permit the Corporation to have, on an ongoing basis, a maximum of 10% ofthe issued and outstanding Common Shares available for issuance pursuant to theexercise of options under the Stock Option Plan. For greater certainty, in theevent that options are exercised, cancelled or expire in accordance with theirterms, an equivalent number of such options will be available to be granted (or“reloaded”) under the Stock Option Plan. With the establishment of the NewMaximum and based on the number of issued and outstanding Common Shares as ofthe date of this Circular, an additional 1,064,670 Common Shares will be listedand reserved for issuance under the Stock Option Plan. As at March 9, 2007,there were 3,880,092 options outstanding and unexercised and 373,185 optionsavailable for granting. Taking into account the additional Common Shares to belisted pursuant to the establishment of the New Maximum, there will be1,437,855 Common Shares available for issuance pursuant to the exercise ofoptions that have yet to be granted.

In aStaff Notice issued by the TSX in July 2006, the TSX required listed issuersthat adopt stock option plans that do not have a fixed maximum number ofsecurities issuable (which will be the case for the Corporation if the proposedamendments to the Stock Option Plan are approved by shareholders) to obtainshareholder approval for unallocated options under such plans three years aftertheir institution and every three years thereafter.  As a result, shareholders of the Corporationwill be asked, not later than three years after the adoption of Resolution2007-1 (assuming such resolution is adopted at the Meeting), to approve anyunallocated options under the Stock Option Plan at such time.

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***Amendment Provision***

TheStock Option Plan currently has a general amendment provision allowing theBoard of Directors to suspend, terminate or to make amendments to the StockOption Plan, subject to TSX and regulatory approval. In the past, such approvalhas been granted at the discretion of the TSX and the TSX determined as towhether the proposed amendment was or was not sufficiently material to requireshareholder approval.

Recently,however, the TSX announced that by June 30, 2007, each listed issuer mustformulate a detailed amendment provision in its stock option plan, failingwhich all future amendments (no matter how immaterial) would requireshareholder approval. The purpose is to more clearly distinguish in the StockOption Plan between the type of amendments that will require shareholderapproval and those which can be made by the Board of Directors withoutshareholder approval. All amendments would continue to be subject to anyrequired regulatory review or approval. The Corporation proposes to amend itsStock Option Plan amendment provision in accordance with this recent TSX rulechange.

TheCorporation proposes to add an amendment provision to the Stock Option Planwhich sets out those circumstances where the Board of Directors may not,without the approval of the holders of the Common Shares, make amendments tothe Stock Option Plan. Shareholder approval will be required for the followingtypes of amendments to the Stock Option Plan: (i) any amendment to theprovision prohibiting the grant of options beyond the 10% Insider Limit unlessshareholder approval on a disinterested vote is obtained; ii) any amendment tothe number of securities issuable under the Stock Option Plan; iii) any amendmentwhich would permit any option granted under the Stock Option Plan to betransferable or assignable other than, by will or in accordance with theapplicable laws of estates and succession; iv) the addition of a cashlessexercise feature, payable in cash or securities, which does not provide for afull deduction of the number of underlying securities from the Stock OptionPlan reserve; v) the addition of a deferred or restricted share unit or anyother provision which results in employees receiving securities while no cashconsideration is received by the Corporation; vi) with respect to an optioneewho is an “insider” of the Corporation, any reduction in the exercise price ofany option after the option has been granted or any cancellation of an option andthe regrant of that option under different terms, except if such regrant occursat least three (3) months after the related cancellation; vii) any extension tothe term of an option beyond the original expiry date to an “insider” of theCorporation (subject to the proposed amendment discussed below under “ExpiryDates during Blackout Periods”); viii) any amendment to the method ofdetermining the exercise price of an option granted pursuant to the StockOption Plan; ix) the addition of any form of financial assistance or anyamendment to a financial assistance provision which is more favourable toemployees, and x) any amendment to the amendment provision of the Stock OptionPlan.

Notwithstandingthe foregoing proposed amendment, shareholder approval will not be required forany adjustments made to the number of issuable shares or the exercise price ofoutstanding options in accordance with the section of the Stock Option Planwhich provides for appropriate adjustments in respect of certain events. Such eventsinclude subdivision or consolidation of shares, payment of dividends in stock(other than dividends in the ordinary course), payment of a special cash ornon-cash dividend made on a *prorata* basisand approved by the Corporation’s shareholder as required under applicable law,reclassification or conversion of shares, recapitalization, reorganization orother events which necessitate adjustments to the outstanding options inproportion with adjustments to all Common Shares.

TheBoard of Directors may, subject to the receipt of the required regulatoryapprovals, and at its sole discretion, make all other amendments to the StockOption Plan that are not described above. Without limiting the generality ofthe foregoing, the Board of Directors will be able to, *inter alia*:i) make any amendment of a “housekeeping” or clerical nature or to clarify theStock Option Plan’s provisions; ii) make any amendment regarding any vestingperiod; iii) make any amendment to the provisions regarding the termination ofan option as long as it does not entail an extension beyond the original expirydate with respect to any optionee who is an “insider” of the Corporation; iv)discontinue or terminate the Stock Option Plan; and v) with respect to anyoptionee who is a “non-insider” of the Corporation, make any amendments to theterms of an option to reduce the exercise price of such option after the optionhas been granted, or to cancel an option and regrant it under different terms.

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***Expiry Dates duringBlackout Periods***

Arecent Staff Notice issued by the TSX recognizes that blackout periods imposedby issuers are an example of good corporate governance and that TSX limitationson extensions of option terms were not intended to penalize listed issuers,their insiders and employees who, under their companies’ trading policies andgood corporate governance practices, are prohibited from exercising optionsduring blackout periods. As a result, the TSX has provided that issuers mayamend their stock option plans to provide a conditional extension to anexpiration date that occurs during or immediately after a blackout period. Suchextension would be permitted for a limited number of days after the end of theblackout period.

TheStock Option Plan currently provides that the expiry date of an option, whichis set at the time of grant, shall not be later than the tenth anniversary ofthe date of the option grant. The Corporation proposes an amendment to providethat, if the expiry date occurs during a blackout period or within the seven (7)business days immediately after a blackout period imposed by the Corporation,the expiry date will be automatically extended to the date which is seven (7)business days after the last day of the blackout period. For the purposes ofthe foregoing, “blackout period” means the period during which trading in theCorporation securities is restricted in accordance with the policies of theCorporation and its affiliates.

Examplesof such a blackout period would include the following: (i) where the optionholder is subject to trading restrictions imposed by the Corporation under itstrading “windows” policy, the period in which trading is restricted or isoutside a permitted trading window, or such period of time where the optionholder is in possession of undisclosed material information (as defined underapplicable securities law) during a trading window; and (ii) such otherrestrictions on trading in securities of the Corporation as may be imposed bythe Corporation from time to time.

Thisamendment will align the proper administration of the Stock Option Plan withthe Corporation’s current trading policies and governance practices.

***Shareholder Approval***

Theseamendments to the Stock Option Plan were approved by the Board of Directors onMarch 2, 2007, subject to shareholder and regulatory approvals. The TSX hasreviewed and approved these proposed additions to the Stock Option Plan. To beeffective, the amendments to the Stock Option Plan must be approved by aresolution passed by a majority of the votes cast by shareholders at theMeeting.

***Recommendation of theBoard and Management***

TheBoard and Æterna Zentaris’ management unanimously recommend that shareholdersvote in favour of the amendments to the Stock Option Plan described above.

**12.****                               RECONFIRMATIONOF THE SHAREHOLDER RIGHTS PLAN**

At the Meeting, shareholders will be asked to consider, and if deemedadvisable, to adopt Resolution 2007-2 approving, ratifying and confirming anAmended and Restated Shareholder Rights Plan Agreement adopted by the Board ofDirectors on March 2, 2007. On May 26, 2004, the shareholders of theCorporation confirmed the Shareholder Rights Plan Agreement adopted by theBoard of Directors on March 29, 2004 (the “Original Rights Plan” and theOriginal Rights Plan as amended by the Amended and Restated Shareholder RightsPlan being hereinafter referred to as the “Rights Plan”). The Rights Plan hasbeen effective since March 29, 2004 and will expire on the earlier of March 29,2010 (subject to the reconfirmation by the shareholders at the Meeting) and thetime at which the right to exercise rights shall terminate pursuant to theprovisions of the Rights Plan pertaining to the redemption of rights and thewaiver of the application of the Rights Plan, after which time it willautomatically terminate.

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The Rights Plan (including the amendments thereto and the restatementthereof) were not adopted by the Board of Directors in response to, or inanticipation of, any offer or take-over bid. The TSX has approved the RightsPlan (including the amendments thereto and the restatement thereof) subject toshareholder approval being obtained at the Meeting.

Resolution 2007-2, a copy of which is reproduced at Schedule A to thisCircular, requires the approval of a majority of the votes cast in respectthereof by Independent Shareholders (as defined in the Rights Plan). “IndependentShareholders” is generally defined to mean all holders of Common Shares of theCorporation other than any Acquiring Person or Offeror (each as defined in theRights Plan), their respective affiliates, associates, and persons actingjointly or in concert with such Acquiring Person or Offeror, as well as certainemployee benefit plans. To the knowledge of management, as of the date hereof,all of the Corporation’s shareholders qualify as Independent Shareholders. Ifthe resolution is not approved by shareholders at the Meeting, the Rights Planand the Rights issued thereunder will terminate at the close of the Meeting.

***Recommendation of theBoard and Management***

Æterna Zentaris’ Board ofDirectors and management unanimously recommend that shareholders vote in favourof the amendment to and restatement of the Rights Plan.

***Objectives and Backgroundof the Rights Plan***

Thefundamental objectives of the Rights Plan are to provide adequate time for theCorporation’s Board of Directors and shareholders to assess an unsolicitedtake-over bid for the Corporation, to provide the Board of Directors withsufficient time to explore and develop alternatives for maximizing shareholdervalue if a take-over bid is made, and to provide shareholders with an equalopportunity to participate in a take-over bid.

TheRights Plan encourages a potential acquiror who makes a take-over bid toproceed either by way of a “Permitted Bid”, which requires a take-over bid tosatisfy certain minimum standards designed to promote fairness, or with theconcurrence of the Corporation’s Board of Directors. If a take-over bid failsto meet these minimum standards and the Rights Plan is not waived by the Boardof Directors, the Rights Plan provides that holders of Common Shares, otherthan the acquiror, will be able to purchase additional Common Shares at asignificant discount to market, thus exposing the person acquiring CommonShares to substantial dilution of its holdings.

***Summary of the Rights Plan***

Thefollowing is a summary of the principal terms of the Rights Plan, which summaryis qualified in its entirety by reference to the terms thereof. The Rights Planis available on SEDAR at www.sedar.com under the Corporation’s SEDAR profile.

***Operation of the RightsPlan***

Pursuantto the terms of the Rights Plan, one right was issued in respect of each CommonShare outstanding as at the close of business on March 29, 2004 (the “RecordTime”). In addition, one right will be issued for each additional Common Shareissued after the Record Time and prior to the earlier of the Expiration Timeand the Separation Time (as defined below). The rights have an initial exerciseprice equal to the Market Price (as defined below) of the Common Shares asdetermined at the Separation Time, multiplied by five, subject to certainadjustments, and they are not exercisable until the Separation Time. Upon theoccurrence of a Flip-in Event (as defined below), each right will entitle theholder thereof, other than an Acquiring Person (as defined below), to purchasefrom the Corporation one Common Share upon payment to the Corporation of 50% ofthe Market Price of the Common Shares on the TSX on the date of consummation oroccurrence of such Flip-in Event, subject to certain anti-dilution adjustments.

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***Tradingof Rights***

Untilthe Separation Time, the rights trade with the Common Shares and arerepresented by the same share certificates as the Common Shares or an entry inthe Corporation’s securities register in respect of any outstanding CommonShares. From and after the Separation Time and prior to the Expiration Time,the rights are evidenced by rights certificates and trade separately from theCommon Shares. The rights do not carry any of the rights attaching to theCommon Shares such as voting or dividend rights.

***SeparationTime***

Therights will separate from the Common Shares to which they are attached andbecome exercisable at the time (the “Separation Time”) of the close of businesson the eighth business day after the earliest to occur of:

1.                                       the first date (the “Stock Acquisition Date”) of a public announcement offacts indicating that a person has become an Acquiring Person (as definedbelow);

2.                                       the date of the commencement of, or first public announcement of theintention of any person (other than the Corporation or any of its subsidiaries)to commence a take-over bid or a share exchange bid for more than 20% of theoutstanding Common Shares of the Corporation other than a Permitted Bid or aCompeting Permitted Bid (as defined below); and

3.                                       the date upon which a Permitted Bid or a Competing Permitted Bid ceases tobe a Permitted Bid or a Competing Permitted Bid, as the case may be.

TheSeparation Time can also be such later time as may from time to time be determinedby the Board of Directors.

***Flip-inEvent***

Theacquisition by a person (an “Acquiring Person”), including others actingjointly or in concert with such person, of more than 20% of the outstandingCommon Shares, other than by way of a Permitted Bid, a Competing Permitted Bidor in certain other limited circumstances described in the Rights Plan, isreferred to as a “Flip-in Event”.

***Definitionof Market Price***

MarketPrice is generally defined in the Rights Plan, on any given day on which adetermination must be made, as the average of the daily closing prices perCommon Share on each of the 20 consecutive Trading Days (as defined below)through and including the Trading Day immediately preceding such date ofdetermination; subject to certain exceptions. Trading Day is generally definedas the day on which the principal Canadian or United States securities exchange(as determined by the Board of Directors acting in good faith) on which theCommon Shares are listed or admitted to trading is open for the transaction ofbusiness.

***Exerciseof Rights***

Uponthe Separation Time or the effective date of the Flip-in Event, whicheveroccurs first, each right (other than those held by the Acquiring Person) willentitle the holder thereof to purchase from the Corporation one Common Shareupon payment to the Corporation of 50% of the Market Price of the Common Sharesof the Corporation on the Stock Acquisition Date subject to certainanti-dilution adjustments.

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***PermittedBid Requirements***

Therequirements of a Permitted Bid include the following:

1.                                       the take-over bid must be made by means of a take-over bid circular;

2.                                       the take-over bid must be made to all holders of Common Shares whereverresident, on identical terms and conditions, other than the bidder;

3.                                       the take-over bid must not permit Common Shares tendered pursuant to thebid to be taken up or paid for (a) prior to the close of business on adate which is not less than 60 days following the date of the bid, and(b) then only if at such date more than 50% of the then outstanding CommonShares held by shareholders other than any other Acquiring Person, the bidder,the bidder’s affiliates or associates, persons acting jointly or in concertwith the bidder and any employee benefit plan, deferred profit-sharing plan, stockparticipation plan or trust for the benefit of employees of the Corporation orany of its subsidiaries, unless the beneficiaries of such plan or trust directthe manner in which the Common Shares are to be voted or direct whether theCommon Shares are to be tendered to a take-over bid (the “IndependentShareholders”), have been deposited or tendered to the take-over bid and notwithdrawn;

4.                                       the take-over bid must allow Common Shares to be deposited, unless thetake-over bid is withdrawn, at any time up to the close of business on the datethat the Common Shares are to be first taken up and paid for;

5.                                       the take-over bid must allow Common Shares to be withdrawn until taken upand paid for; and

6.                                       if more than 50% of the then outstanding Common Shares held by IndependentShareholders are deposited or tendered to the take-over bid and not withdrawn,the bidder must make a public announcement of that fact and the take-over bidmust remain open for deposits and tenders of Common Shares for not less than 10days from the date of such public announcement.

TheRights Plan allows a competing Permitted Bid (a “Competing Permitted Bid”) tobe made while a Permitted Bid is in existence. A Competing Permitted Bid mustsatisfy all the requirements of a Permitted Bid other than the requirements setout in clauses 3 and 6 above and must not permit Common Shares tendered ordeposited pursuant to the bid to be taken up or paid for (a) prior to theclose of business on a date which is not earlier than the latter of the lastday on which the bid must be open for acceptance after the date of the bidunder applicable Canadian provincial securities legislation and the earliestdate on which Common Shares of the Corporation may be taken up and paid forunder any earlier Permitted Bid or Competing Permitted Bid that is then inexistence, and (b) then only if at such date more than 50% of the thenoutstanding Common Shares held by the Independent Shareholders have beendeposited or tendered to the take-over bid and not withdrawn.  In the event that the requirement set forthin (b) of this paragraph is satisfied, the competing bidder must make a publicannouncement of the fact and the take-over bid must remain open for depositsand tenders of Common Shares for not less than 10 days from the date of suchpublic announcement.

***Waiverand Redemption***

TheBoard may, prior to the occurrence of a Flip-in Event, waive the dilutiveeffects of the Rights Plan in respect of, among other things, a particularFlip-in Event resulting from a take-over bid made by way of a take-over bidcircular to all holders of Common Shares of the Corporation.  In such an event, such waiver shall also bedeemed to be a waiver in respect of any other Flip-in Event occurring under atake-over bid made by way of a take-over bid circular to all holders of CommonShares prior to the expiry of the first mentioned take-over bid.

TheBoard may, at any time prior to the Separation Time, elect to redeem all butnot less than all of the outstanding rights at a price of $0.00001 each.

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***Amendmentto the Rights Plan***

TheRights Plan may be amended to correct any clerical or typographical error or tomake such changes as are required to maintain the validity of the Rights Planas a result of any change in any applicable legislation, regulations or rulesthereunder, without the approval of the holders of the Common Shares or rights.Prior to the Separation Time, the Corporation may, with the prior consent ofthe holders of Common Shares, amend, vary or delete any of the provisions of theRights Plan in order to effect any changes which the Board, acting in goodfaith, considers necessary or desirable. The Corporation may, with the priorconsent of the holders of rights, at any time after the Separation Time andbefore the Expiration Time, amend, vary or delete any of the provisions of theRights Plan.

TheRights Plan, including the amendments thereto and the restatement thereof,being submitted for approval, ratification and confirmation by the shareholderswas approved by the Board of Directors on March 2, 2007 and was signed on March5, 2007. The purpose of the amendments is to make improvements andclarifications to the wording of the Original Rights Plan, primarily so thatthe Rights Plan is in line with similar plans recently approved by shareholdersof other publicly traded Canadians corporations. In addition, the price atwhich the Board of Directors may elect to redeem all but not less than all ofthe outstanding rights at any time prior to the Separation Time has beenchanged from $0.0001 to $0.00001 per right. Certain other minor amendments havebeen made to the Original Rights Plan to, among other things, reflect the factsuch plan has been amended by the amended and restated Rights Plan. However,none of the foregoing amendments alters the substance of the Rights Plan. Theseamendments will become effective only at the time of reconfirmation andapproval of the Rights Plan by the shareholders of the Corporation at theMeeting and are indicated in the blacklined version of the Rights Plan which isavailable from the Corporate Secretary of the Corporation upon request.

***FiduciaryDuty of Board***

TheRights Plan will not detract from or lessen the duty of the Board of Directorsto act honestly and in good faith with a view to the best interests of theCorporation and its shareholders. The Board of Directors will continue to havethe duty and power to take such actions and make such recommendations to theCorporation’s shareholders as are considered appropriate.

***Exemptionsfor Investment Advisors***

Fundmanagers, investment advisors (for fully-managed accounts), trust companies(acting in their capacities as trustees and administrators), statutory bodieswhose business includes the management of funds, and administrators ofregistered pension plans are exempt from triggering a Flip-in Event, providedthat they are not making, or are not part of a group making, a take-over bid.

***CertainCanadian Federal Income Tax Considerations of the Rights Plan***

TheCorporation will not be required to include any amount in computing its incomefor the purposes of the Income Tax Act (Canada) (the “ITA”) as a result of theissuance of the rights.

Underthe ITA, the issuance of rights to a recipient could be considered a taxablebenefit, the value of which is required to be included in computing the incomeof a Canadian resident recipient or is subject to withholding tax in the caseof a recipient who is not resident in Canada. In any event, no amount inrespect of the value of the rights is required to be included in computingincome, or subject to withholding tax, if the rights do not have any value atthe date of issue. The Corporation considers that the rights will havenegligible value when issued, there being only a remote possibility that therights will ever be exercised. A holder of rights could be required to includean amount in computing income or be subject to withholding tax under the ITA ifthe rights become exercisable or are exercised. A holder of rights may besubject to tax under the ITA in respect of the proceeds of disposition of suchrights.

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**Thisstatement is of a general nature only and is not intended to constitute norshould it be construed to constitute legal or tax advice to any particularholder of Common Shares. Such shareholders are advised to consult their own taxadvisors regarding the consequences of acquiring, holding, exercising orotherwise disposing of their rights, taking into account their own particularcircumstances and any applicable federal, provincial, territorial or foreignlegislation.**

***Eligibilityfor Investment***

Providedthat the Corporation remains a “public corporation” for purposes of the ITA atall material times, the rights will be qualified investments under the ITA forregistered retirement savings plans, registered education savings plans,registered retirement income funds and deferred profit-sharing plans. Theissuance of rights will not affect the status of the Common Shares of theCorporation under the ITA for such purposes, nor will it affect the eligibilityof such securities as investments for investors governed by certain Canadianfederal and provincial legislation governing insurance companies, trustcompanies and pension plans.

**13.****                               INDEBTEDNESSOF DIRECTORS AND OFFICERS**

Neither at anytime during the financial year ended December 31, 2006 nor as at March 9, 2007were any of the directors or officers indebted to the Corporation in respect ofthe purchase of securities of the Corporation or otherwise.****OnMarch 29, 2004, the Board of Directors of the Corporation adopted a resolutionformally prohibiting (i) the making of any new loans to its directors andofficers, and (ii) modifying the material terms of any such existing loans.

**14.****                               INTERESTOF INFORMED PERSONS IN MATERIAL TRANSACTIONS**

The Corporation isnot aware, other than as set out below, that any of its “informed persons” hashad an interest in any material transaction carried out since the beginning ofthe Corporation’s last completed financial year or in any proposed transactionwhich has materially affected or is likely to materially affect the Corporationor any of its subsidiaries. Applicable securities legislation defines an “informedperson” as meaning any one of the following: (a) a director or executiveofficer of a reporting issuer; (b) a director or executive officer of a personor company that is itself an informed person or subsidiary of a reportingissuer; (c) any person or company who beneficially owns, directly orindirectly, voting securities of a reporting issuer or who exercises control ordirection over voting securities of a reporting issuer or a combination of bothcarrying more than 10 percent of the voting rights attached to all outstandingvoting securities of the reporting issuer other than voting securities held bythe person or company as underwriter in the course of a distribution; and (d) areporting issuer that has purchased, redeemed or otherwise acquired any of itssecurities, for so long as it holds any of its securities.

In February 2006,Solidarity Fund (QFL) and SGF Santé Inc., each of whom holds more than 10% ofthe outstanding Common Shares of the Corporation, exercised its right toconvert its portion of a convertible loan under a loan agreement originallyentered into among the Corporation, Solidarity Fund (QFL) and SGF Santé Inc. in2003, pursuant to which each of the foregoing shareholders loaned theCorporation a principal amount of $12,500,000. Upon conversion by SolidarityFund (QFL) and SGF Santé Inc. of both all principal and interest dueunder the convertible loan agreement, the Corporation issued to each of them3,477,544 Common Shares in accordance with the provisions of the agreement.Following the conversion and share issuance described above, there remains noamount of indebtedness outstanding under the loan agreement.

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**15.****                               INSURANCEOF DIRECTORS AND OFFICERS**

The Corporation purchases liability insurance for thebenefit of its directors and officers, which protects them against certainliabilities incurred by them while acting in such capacity. In 2006, this insuranceprovided a maximum coverage of $25,000,000 per event and policy year. For thefinancial year ended December 31, 2006, the premium paid by the Corporation was$718,800. When the Corporation is authorized or required to indemnify insuredpersons, a deductible of $250,000 applies, except for securities-based claims,for which the deductible is $500,000. It is anticipated that the amount ofpremium to be paid in respect of such insurance for the 2007 fiscal year willbe approximately $565,000.

**16.****                               SHAREHOLDERPROPOSALS FOR NEXT ANNUAL MEETING OF SHAREHOLDERS**

Shareholderproposals must be submitted no later than December 7, 2007 in order that theCorporation may include them in its management information circular that willbe prepared and mailed in connection with the Corporation’s annual meeting ofshareholders in 2008.

**17.****                               ADDITIONALINFORMATION**

The Corporation will provide the following documentsto any person or company upon request to the Corporate Secretary of theCorporation, at its head office at 1405 du Parc-Technologique Boulevard, QuebecCity, Quebec, G1P 4P5:

(i)                                     onecopy of the audited annual financial statements of the Corporation for its mostrecently completed financial year together with the report of the auditorsthereon, both contained in the Corporation’s 2006 Annual Report, and one copyof any interim financial statements of the Corporation published subsequent tothe financial statements for its most recent financial year; and

(ii)                                  onecopy of this Circular.

Inaddition, the Corporation’s Annual Information Form will be available from thedate of its filing with the securities commissions or similar securitiesregulatory authorities in Canada as well as any other document incorporated byreference in such Annual Information Form. The Corporation may require thepayment of reasonable expenses if a request is received from a person who isnot a holder of securities of the Corporation, unless the Corporation makes adistribution of its securities pursuant to a short-form prospectus, in whichcase such documents will be provided free of charge. Copies of the Corporation’spublic disclosure documents, including financial statements, informationcirculars and annual information forms, are also available at the followingWeb sites: www.aeternazentaris.com, www.sedar.com, and www.sec.gov.Financial information related to the Corporation is provided in its auditedconsolidated financial statements and Management’s Discussion and Analysisthereon for the financial year ended December 31, 2006.

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**18.****                               MAILSERVICE INTERRUPTION**

Ifthere is a mail interruption prior to a shareholder mailing a completed proxyto Computershare, it is recommended that the shareholder deposit the completedproxy, in the envelope provided, at any of the following offices of Computershare:
| **Alberta******4820-52 Street S.E.  Calgary, Alberta   T2B 3R2                 | ** ** | **Nova Scotia**1969 Upper Water Street   Suite 2008, Purdy’s Wharf, Tower II Halifax, Nova Scotia   B3J 3R7 | ** ** | **Quebec******7th Floor   1500 University Street   Montréal, Quebec   H3A 3S8 |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|
| ** **                                                                     | ** ** | ** **                                                                                                       | ** ** | ** **                                                                              |
| **Ontario******11th Floor   100 University Avenue   Toronto, Ontario   M5J 2Y1 | ** ** | **British  Columbia******2nd Floor   510 Burrard Street   Vancouver, British Columbia   V6C 3B9                  | ** ** | **Manitoba******830, 201 Portage Avenue   Winnipeg, Manitoba   R3B 3K6                  |

 

**19.****                               DIRECTORS’APPROVAL**

The contents and the sending of this Circular wereapproved by the Board of Directors of the Corporation.

Dated at Quebec City, Quebec, March 9, 2007.

Mario Paradis, CA

CorporateSecretary

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**SCHEDULE A**

RESOLUTION 2007-1

**Resolved as Resolution 2007-1:**

**THAT** the amendments to the Corporation’s Stock Option Plan approved by theBoard of Directors on March 2, 2007 (i) to change the maximum number of CommonShares issuable under the Stock Option Plan from a fixed number to a fixedpercentage of the issued and outstanding Common Shares of the Corporation, (ii)to amend the Stock Option Plan’s amending provision to describe amendments thatwill require shareholder approval, and (iii) to provide for the limitedextension of the expiry dates of options where such expiry date occurs within ablackout period or within the seven (7) business days immediately following ablackout period imposed by the Corporation, all as described in theManagement  Information Circular of theCorporation dated March 9, 2007, be and they are hereby approved; and

**THAT** any officer or director of the Corporation be, and each is hereby,authorized and directed to sign and deliver, for and on behalf of theCorporation, all such documents and do all such acts and things as may beconsidered necessary or desirable to give effect to this Resolution 2007-1.

RESOLUTION 2007-2

**Resolved as Resolution 2007-2:**

**THAT**the continuation of the Corporation’s Shareholder Rights Plan and its amendmentand restatement as provided for in the Amended and Restated Rights PlanAgreement dated as of March 5, 2007 be, and it is hereby, approved, ratifiedand confirmed; and

**THAT**anyofficer or director of the Corporation be, and each is hereby, authorized anddirected to sign and deliver, for and on behalf of the Corporation, all suchdocuments and do all such acts and things as may be considered necessary ordesirable to give effect to this Resolution 2007-2.

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**SCHEDULE B**

**STATEMENT OF CORPORATE GOVERNANCE PRACTICES**

**NEW DISCLOSURE RULES AND POLICIES (FORM 58-101F1)**

**1.****                              BOARDOF DIRECTORS**

**A.****                     Disclosethe identity of directors who are independent.**

Mr. Aubut, Ms. Byorum, Mr.Dorais, Mr. Ernst, Mr. Laurin, Mr. Limoges, Mr. MacDonald and Mr. Martin areindependent.

**B.****                     Disclosethe identity of directors who are not independent and describe the basis forthat determination.**

Dr. Dupont is ExecutiveChairman of the Board, Mr. Gagnon is the President and Chief Executive Officerof the Corporation and Prof. Dr. Engel is the Chief Operating Officer of theCorporation.

**C.****                     Disclosewhether or not a majority of directors are independent. If a majority ofdirectors are not independent, describe what the Board of Directors (the “Board”)does to facilitate its exercise of independent judgement in carrying out itsresponsibilities.**

The Board is currentlycomposed of a majority of independent directors, being eight (8) out of eleven(11) directors.

**D.****                     Ifa director is presently a director of any other issuer that is a reportingissuer (or the equivalent) in a jurisdiction or a foreign jurisdiction,identify both the director and the other issuer.**
| Name of director     | ** ** | **Name of reporting issuer**                                                                                                                                         |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Aubut, Marcel        |       | Boralex Power Income Fund                                                                                                                                            |
| Byorum, Stormy       |       | Northwest Natural Gas                                                                                                                                                |
| Laurin, Pierre       |       | Atrium Biotechnologies Inc.   Quebecor Inc.                                                                                                                          |
| Limoges, Gérard |       | Alexis Nihon Real Estate investment Trust   Atrium Biotechnologies Inc.   Engenuity Technologies Inc.   Hart Stores Inc.   Hartco Income   Trust Noranda Income Fund |
| MacDonald,  Pierre   |       | AIM Trimark Canada Fund Inc.   AIM Trimark Global Fund Inc.                                                                                                          |

 

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**E.****                      Disclosewhether or not the independent directors hold regularly scheduled meetings atwhich non-independent directors and members of management are not inattendance. If yes, disclose the number of meetings held since the beginning ofthe issuer’s most recently completed financial year. If not, describe what theBoard does to facilitate open and candid discussion amongst its independentdirectors.**

From time to time, theChairman of the Board ensures that directors hold meetings at which seniormanagement is not present.

**F.****                      Disclosewhether or not the Chair of the Board is an independent director. If the Boardhas a chair or lead director who is an independent director, disclose theidentity of the independent chair or lead director, and describe his role andresponsibilities. If not, describe what the Board does to provide leadershipfor its independent directors.**

Dr. Éric Dupont, ExecutiveChairman of the Board, is not an independent director. However, the Board is ofthe view that all independent directors carry out their duties and leadershipat all meetings. Moreover, Mr. Jürgen Ernst, an independent director, wasappointed Vice Chairman of the Board in November 2005.

**G.****                    Disclosethe attendance record of each director for all Board meetings held since thebeginning of the most recently completed financial year.**
| Board members        | ** ** | **Board meetings** | ** ** | **Committee meetings** |
|----------------------|------------|--------------------|------------|------------------------|
| Aubut, Marcel        |       | 8/8                |       | N/A                    |
| Byorum, Stormy       |       | 7/8                |       | 3/4                    |
| Dorais, José P. |       | 6/6                |       | N/A                    |
| Dupont, Éric    |       | 8/8                |       | 6/6                    |
| Engel, Jürgen   |       | 8/8                |       | N/A                    |
| Ernst, Jürgen   |       | 8/8                |       | 6/6                    |
| Gagnon, Gilles       |       | 8/8                |       | N/A                    |
| Laurin, Pierre       |       | 8/8                |       | 5/6                    |
| Limoges, Gérard |       | 8/8                |       | 4/4                    |
| MacDonald,  Pierre   |       | 8/8                |       | 10/10                  |
| Martin, Gerald  J.   |       | 7/8                |       | N/A                    |

 

**2.****                              BOARDMANDATE**

**Disclose the text of the Board’s written mandate.If the Board does not have a written mandate, describe how the Board delineatesits role and responsibilities.**

The Board of Directors adoptedand approved a written mandate on February 28, 2006, a copy of which isattached as Schedule C to this Circular.

**3.****                              POSITIONDESCRIPTIONS**

**A.****                     Disclosewhether or not the Board has developed written position descriptions for thechair and the chair of each Board committee. If not, briefly describe how theBoard delineates the role and responsibilities of each such position.**

The Board has adopted andapproved a written description for the chair and the chair of each Boardcommittee. The mandate of the Chairman of the Board states that he/she isresponsible for the administration, development and efficient operation of the Board.He/she shall make sure that

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the Board adequatelydischarges its mandate and that the Board’s responsibilities and boundarieswith management are well understood by the directors. The mandates of eachcommittee chair provide that each chair’s responsibility is to efficientlymanage his or her respective committee. The Committee chair must ensure thatthe committee adequately discharges its mandate. Committee chairs must reportregularly to the Board on the business of their committee.

**B.****                     Disclosewhether or not the Board and CEO have developed a written position descriptionfor the CEO. If not, briefly describe how the Board delineates the role andresponsibilities of the CEO.**

The Board and the CEO havedeveloped a written position description for the CEO. The Board expects the CEOand the Corporation’s senior management team to be responsible for themanagement of the Corporation’s strategic and operational agenda and for theexecution of the decisions of the Board.

**4.****                              ORIENTATIONAND CONTINUING EDUCATION**

**A.****                     Brieflydescribe what measures the Board takes to orient new directors regarding:**

(i)                     the role ofthe Board, its committees and its directors, and

(ii)                  the nature andoperation of the issuer’s business.

The Board ensures that everynew director possesses the capacities, expertise, availability and knowledgerequired to fill this position. In addition, the Chairman of the Board and theCEO meet new directors in order to give them information on the Corporation’soperations. Each new director receives an information book that includes themandate of the Board and all corporate documents related to operations, productpipeline and financial condition.

**B.****                     Brieflydescribe what measures, if any, the Board takes to provide continuing educationfor its directors. If the Board does not provide continuing education, describehow the Board ensures that its directors maintain the skill and knowledge tomeet their obligations as directors.**

Continuous information isprovided to all directors in respect of their role and responsibilities.Moreover, all revised corporate documents are systematically sent to directors(product pipeline, fact sheet, corporate presentation, etc.). At every meetingof the Board of Directors, directors have an opportunity to hear presentationsby executive officers on various topics regarding the Corporation’s operations.In addition, one meeting per year is organized in Frankfurt, Germany in orderto give Board members an opportunity to visit the Corporation’s Germanfacilities.

**5.****                              ETHICALBUSINESS CONDUCT**

**A.****                     Disclosewhether or not the Board has adopted a written code for the directors,officers, and employees. If the Board has adopted a written code:**

**(i)****                        Disclosehow a person or company may obtain a copy of the code.**

The Corporation has adoptedand updated at various points a Code of Ethical Conduct (the “Code”). The Codeis attached as Schedule F to this Circular and is also accessible on theCorporation’s Web site at www.aeternazentaris.com.

**(ii)****                    Describe howthe Board monitors compliance with its code or, if the Board does not monitorcompliance, explain whether and how the Board satisfies itself regardingcompliance with its code; and**

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A copy of the Code was sent toeach director, officer and employee when it was adopted. In addition, each newemployee also receives a copy of the Code when hired. The Corporation hasselected an independent third-party supplier to provide a confidential andanonymous communication channel for reporting concerns about possibleviolations of the Code as well as financial and/or accounting irregularities orfraud.

**(iii)****                Provide across-reference to any material change report filed since the beginning of themost recently completed financial year that pertains to any conduct of adirector or executive officer that constitutes a departure from the code.**

No material change report hasbeen filed by the Corporation regarding departures from the Code.

**B.****                     Describeany steps the Board takes to ensure directors exercise independent judgement inconsidering transactions and agreements in respect of which a director orexecutive officer has a material interest.**

There is no director orexecutive officer of the Corporation who has a material interest in anytransaction to which the Corporation is a party, other than ordinary courseemployment agreements.

**C.****                     Describeany other steps the Board takes to encourage and promote a culture of ethicalbusiness conduct.**

On the Web site of theCorporation, under the section “Investor Relations/Governance”, the Corporationindicates its commitment to preserve its reputation for integrity andexcellence, and conducting the businesses and activities of the Corporationhonestly and ethically and in compliance with applicable laws, rules andregulations. A mechanism for confidential and anonymous disclosure has been putin place and is also available on the Web site of the Corporation.

**6.****                              NOMINATIONOF DIRECTORS**

**A.****                     Describethe process by which the Board identifies new candidates for Board nomination.**

The selection of newcandidates is made by the Corporate Governance, Nominating and Human ResourcesCommittee. This committee establishes the criteria in respect of thecomplementarity and expertise that each candidate for election to the Boardwould bring to the Board. Next, the committee recommends to the Board newcandidates for approval.

**B.****                     Disclosewhether or not the Board has a nominating committee composed entirely ofindependent directors. If not, describe what steps the Board takes to encouragean objective nomination process.**

The Corporate Governance,Nominating and Human Resources Committee is composed of a majority of unrelateddirectors. The Board is of the opinion that with three of four committeemembers being independent, the nomination process is objective.

**C.****                     Ifthe Board has a nominating committee, describe the responsibilities, powers andoperation of the nominating committee.**

The Corporate Governance,Nominating and Human Resources Committee serves as the Corporation’s nominatingcommittee. The responsibilities, powers and operation of this committee are setforth in its mandate, which is attached as Schedule E to this Circular.

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**7.****                              COMPENSATION**

**A.****                     Describethe process by which the Board determines the compensation for the directorsand officers.**

The compensation of directorsand officers is recommended by the Corporate Governance, Nominating and HumanResources Committee to the Board for approval. Compensation is reviewedannually by means of studies, with respect to a reference market and composedof comparable businesses.

**B.****                     Disclosewhether or not the Board has a compensation committee composed entirely ofindependent directors. If not, describe what steps the Board takes to ensure anobjective process for determining such compensation.**

The Corporate Governance,Nominating and Human Resources Committee serves as the Board’s compensationcommittee. The Corporate Governance, Nominating and Human Resources Committeeis composed of a majority of unrelated directors. The Board is of the opinionthat with three of four committee members being independent, the compensationprocess review is objective.

**C.****                     Ifthe Board has a compensation committee, describe the responsibilities, powersand operation of the compensation committee.**

The Corporate Governance,Nominating and Human Resources Committee serves as the Board’s compensationcommittee. The responsibilities, powers and operation of the CorporateGovernance, Nominating and Human Resources Committee are described in themandate, which is attached as Schedule E to this Circular.

**D.****                     Ifa compensation consultant or advisor has, at any time since the beginning ofthe most recently completed financial year, been retained to assist indetermining compensation for any of the Corporation’s directors and officers,disclose the identity of the consultant or advisor and briefly summarize themandate for which they have been retained.**

The Corporate Governance,Nominating and Human Resources Committee has not retained any consultant oradvisor during the most recently completed financial year.

**8.****                              OTHERBOARD COMMITTEES**

**If the Board has standing committees other thanthe audit, compensation and nominating committees, identify the committees anddescribe their function.**

The Audit Committee and theCorporate Governance, Nominating and Human Resources Committee are the solestanding committees of the Board.

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**9.****                              ASSESSMENTS**

**Disclose whether or not the Board, its committeesand individual directors are regularly assessed with respect to theireffectiveness and contribution. If assessments are regularly conducted,describe the process used for the assessments. If not, describe how the Boardsatisfies itself that the Board, its committees and its individual directorsare performing effectively.**

The Corporate Governance,Nominating and Human Resources Committee is responsible for assessing the Boardas a whole and each individual director. The Chairman of the Board, who is alsoa member of the Corporate Governance, Nominating and Human Resources Committee,meets with every Board member on an individual basis. Reports of the findingsand recommendations, if any, are then presented to the Board of Directors andtime is set aside at that meeting for a full and comprehensive discussionregarding Board and Committees effectiveness and any agreed upon improvementsare implemented.

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# **SCHEDULE C**

# **MANDATE OF THE BOARD OF DIRECTORS**

**1.**                                      STEWARDSHIP RESPONSIBILITY

The Board of Directors (the “Board”) of ÆternaZentaris Inc. (the “Corporation”) assumes stewardship of the Corporation’soverall administration and supervises the management of the Corporation’soperations with the objective of increasing shareholder value.

Although management conducts the day-to-dayoperations of the Corporation, the Board has a duty of stewardship andregularly assesses and monitors management’s performance.

In spite of the fact that directors may beelected by the shareholders to bring a special expertise or point of view toBoard deliberations, they are not chosen to represent a particularconstituency. All decisions of each Board member must be made in the best interestsof the Corporation.

Directors are expected to attend all Boardmeetings and review all meeting materials in advance. They are expected to takean active part in Board decisions. From time to time, the Board may delegatecertain tasks to its committees. However, such delegation does not relieve theBoard of its overall responsibilities and, unless the mandate of a committee ofthe Board specifically confers upon such committee decision-making authoritywith respect to a particular matter, the Board retains ultimate decision-makingauthority with respect to all matters, as authorized to exercice pursuant tothe law, relating to the administration and affairs of the Corporation.

**2.**                                      COMPOSITION OF THE BOARD AND OPERATION

The Corporation’s Articles provide that theBoard shall be composed of a minimum of five (5) and a maximum of fifteen (15)directors. Directors are elected annually by the shareholders of theCorporation, but the directors may from time to time appoint one or moredirectors, provided that the total number of directors so appointed does notexceed one third (1⁄3) of the number of directors elected at the lastannual meeting of shareholders. The mandate of each director terminates at theend of the annual shareholders’ meeting following that at which he or she was elected.

The Board is to be constituted of a majority ofindividuals who qualify as independent directors. An independent director isone who is independent of management and has no material relationship with, orreceives no financial benefit from, the Corporation, other than directors’ feesand share ownership. As a general rule, the interests of an independentdirector should be aligned with those of shareholders.

The composition of the Board should provide amix of skills, business expertise and experience in the Corporation’s areas ofactivities.

The Board must nominate its Chairman from amongthe directors of the Corporation. In addition, if the Chairman is a directorwho also is a member of senior management of, or is otherwise related to, theCorporation, the Board could also nominate a lead director, if appropriate,from among the independent directors to take on appropriate duties. From timeto time, following meetings of the Board, the directors shall hold meetings atwhich senior management is not present in order to ensure a free and opendiscussion between directors.

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The quorum at any meeting of the Board is amajority of directors in office and meetings of the Board are held at leastquarterly and as required.  In addition,a special meeting of the Board is held, at least once a year, to review theCorporation’s strategic plan.

The Chairman of the Board develops the agendafor each meeting of the Board in consultation with the Chief Executive Officer.The agenda and the appropriate materials are provided to directors of theCorporation on a timely basis prior to any meeting of the Board.

The Corporate Governance, Nominating and HumanResources Committee annually supervises the performance assessment ofindividual directors, the Board as a whole, the Board committees, and the Boardand committee chairs.

**3.**                                      RESPONSIBILITIES

The Board has the following responsibilities:

**(a)**                                  Strategic Planning

(i)                      Approving the Corporation’s long-termstrategy, taking into account, among other things, business opportunities andrisks of the business.

(ii)                   Approving and monitoring the implementation of theCorporation’s annual business plan.

(iii)                Advising management on strategic issues.

**(b)**                                  Human Resources and Performance Assessment

(i)                      Choosing the Chief Executive Officer (the“CEO”) and approving the appointment of other senior management executives.

(ii)                   Monitoring and assessing the performance of the CEOand other members of senior management and approving their compensation, takinginto consideration Board expectations and fixed goals and objectives.

(iii)                Monitoring management and Board succession planningprocess.

(iv)               Monitoring the size and composition of the Board andits committees based on the competencies, skills, and personal qualities soughtin Board members.

(v)                  Approving the list of Board nominees to be submittedfor election by shareholders.

**(c)**                                  Financial Matters and Internal Control

(i)                      Monitoring the integrity and quality ofthe Corporation’s financial statements and the appropriateness of their disclosure.

(ii)                   Reviewing the general content and the Audit Committee’sreport on the financial aspects of the Corporation’s Annual Information Form,Annual Report, Management Proxy Circular, Management’s Discussion and Analysis,prospectuses and any other document required to be disclosed or filed by theCorporation before such documents are publicly disclosed or filed with theappropriate regulatory authorities.

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(iii)                Approving operating and capital budgets, the issuanceof securities and, subject to the schedule of authority adopted by the Board,any transaction outside the ordinary course of business, including proposals onmergers, acquisitions or other major transactions, such as investments,divestitures, stock consolidations, reclassifications or recapitalizations.

(iv)               Determining dividend policies and procedures.

(v)                  Taking all reasonable measures to ensure thatappropriate systems are in place to identify business risks and opportunitiesand overseeing the implementation of processes to manage these risks andopportunities.

(vi)               Monitoring the quality and integrity of theCorporation’s accounting and financial reporting systems, disclosure controlsand procedures, internal controls and management information systems, includingby overseeing:

(a)                                  the integrity and quality of theCorporation’s financial statements and other financial information and theappropriateness and adequacy of their disclosure;

(b)                                 the review of the Audit Committee onexternal auditors’ independence and qualifications;

(c)                                  the performance of the Corporation’sinternal audit function, if any, and of the Corporation’s external auditors;and

(d)                                 the Corporation’s compliance withapplicable legal and regulatory requirements (including those related toenvironment, safety and security).

(vii)            Monitoring the Corporation’s compliance withapplicable legal and regulatory requirements.

(viii)         Reviewing at least annually the Corporation’scommunications policy and monitoring the Corporation’s communications withanalysts, investors and the public.

**(d)**                                  Corporate Governance Matters

(i)                      Taking all reasonable measures to satisfyitself as to the integrity of management and ensuring that management creates aculture of integrity throughout the Corporation.

(ii)                   Reviewing, on a regular basis, appropriate corporategovernance structures and procedures, including the identification of decisionsrequiring approval of the Board and, where appropriate, measures for receivingstakeholder feedback, and the adequate public disclosure thereof.

(iii)                Adopting and reviewing, on a regular basis, theCorporation’s Code of Ethical Conduct applicable to the Corporation’sdirectors, its CEO, its financial officers and its other officers and employeesand monitoring compliance with such code.

(iv)               Taking all reasonable measures to ensure the annualperformance assessment of the Board, Board committees, Board and committeechairs and individual directors.

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(v)                  Adopting orientation and continuing education programsfor directors.

**(e)**                                  Pension-Related Matters

(i)                      Monitoring the governance structure,funding, and investment policies for the Corporation’s pension plan(s).

Adopted and approved bythe Board of Directors on February 28, 2006.

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**SCHEDULE D**

**AUDIT COMMITTEE CHARTER**

**1.****                          ****MISSION STATEMENT**

TheAudit Committee (the “Committee”) will assist the Board of Directors infulfilling its oversight responsibilities. The Audit Committee will review thefinancial reporting process, the system of internal control, the audit process,and the company’s process for monitoring compliance with laws and regulationsand with the Code of Ethical Conduct. In performing its duties, the Committeewill maintain effective working relationships with the Board of Directors,management, and the external auditors. To effectively perform his or her role,each Committee member will obtain an understanding of the detailedresponsibilities of Committee membership as well as the company’s business,operations, and risks.

Thefunction of the Committee is oversight and while it has the responsibilitiesand powers set forth in this charter, it is neither the duty of the Committeeto plan or to conduct audits or to determine that the company’s financialstatements are complete, accurate and in accordance with generally acceptedaccounting principles, nor to maintain internal controls and procedures.

**2.****                          ****POWERS**

TheBoard authorizes the Audit Committee, within the scope of its responsibilities,to:

·                            Performactivities within the scope of its charter.

·                            Engageindependent counsel and other advisers as it deems necessary to carry out itsduties.

·                            Setand pay the compensation for any advisors it employs.

·                            Ensurethe attendance of company officers at meetings as appropriate.

·                            Haveunrestricted access to members of management, employees and relevantinformation.

·                            Communicatedirectly with the internal and external auditors.

**3.****                          ****COMPOSITION**

·                            TheAudit Committee shall be formed of three members, each of which shall be adirector not holding a management function.

·                            Eachmember shall provide a useful contribution to the Committee.

·                            Allmembers shall be independent of management.

·                            Allmembers must be financially literate.

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·                            Thechairperson of the Audit Committee shall be appointed by the Board from time totime.

·                            Theterm of the mandate of each member shall be one year.

·                            Thequorum requirement for any meeting shall be two members.

·                            Thesecretary of the Audit Committee shall be the secretary of the company or anyother individual appointed by the Board.

**4.****                          ****MEETINGS**

·                            Ifdeemed necessary, the Audit Committee may invite other individuals (such as theExecutive Vice President and COO or the Vice President and CFO).

·                            Externalauditors shall be invited, if needed, to make presentations to the AuditCommittee.

·                            TheCommittee shall meet at least four times a year. Special meetings may be heldif needed. If deemed necessary, external auditors may invite members to attendany meeting.

·                            TheAudit Committee will meet with the external auditors at least once a yearwithout management presence.

·                            Theminutes of each meeting shall be recorded.

**5.****                          ****ROLE AND RESPONSIBILITIES**

#### **A.****                     FinancialInformation**

i)                            Review significant accounting andreporting issues, including recent professional and regulatory pronouncements,and understand their impact on the financial statements.

ii)                         Ask management and external auditorsabout significant risks and exposures and the plans to minimize such risks.

iii)                      Review the unaudited interim financialstatements, the audited annual financial statements in addition to anydocuments which accompany such financial statements, such as the report of theexternal auditors, prior to filing or disclosure. Determine whether they arecomplete and consistent with the information known to Committee members, andassess whether the financial statements reflect appropriate accountingprinciples and recommend their approval to the Board of Directors.

iv)                     Review and recommend for approval by theBoard, all public disclosure documents containing audited or unauditedfinancial information, including Management’s Discussion and Analysis offinancial condition, all sections of the Annual Report and press releasesconcerning annual and interim financial results, and consider whether theinformation is adequate and consistent with members’ knowledge about thecompany and its operations.

v)                        Review the compliance of the Presidentand Chief Executive Officer and of the Chief Financial Officer certification onthe company’s controls and procedures disclosure of information and theattestation by management of the financial reports.

vi)                     Pay particular attention to complexand/or unusual transactions such as restructuring charges and derivativedisclosures.

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vii)                  Focus on judgmental areas such as thoseinvolving valuation of assets and liabilities including, for example, theaccounting for and disclosure of: obsolete or slow-moving inventory; loanlosses; warranty, product, and environmental liability; litigation reserves andother commitments and contingencies.

viii)               Meet with management and the externalauditors to review the financial statements and the results of the audit.

ix)                       Consider management’s handling ofproposed audit adjustments identified by the external auditors.

x)                          Ensure that the external auditorscommunicate certain required matters to the Committee.

xi)                       Be briefed on how management develops andsummarizes quarterly financial information, the extent to which the externalauditors review quarterly financial information, and whether that review isperformed on a pre- or post-issuance basis.

xii)                    Meet with management and, if a pre-issuancereview was completed, with the external auditors, either by telephone or inperson, to review the interim financial statements and the results of thereview.

xiii)                 To gain insight into the fairness of theinterim statements and disclosures, obtain explanations from management onwhether:

·                  Actual financial results for the quarter or interim period variedsignificantly from budgeted or projected results;

·                  Changes in financial ratios and relationships in the interim financialstatements are consistent with changes in the company’s operations andfinancing practices;

·                  Generally accepted accounting principles have been consistentlyapplied;

·                  There are any actual or proposed changes in accounting or financialreporting practices;

·                  There are any significant or unusual events or transactions;

·                  The company’s financial and operating controls are functioningeffectively;

·                  The company has complied with the terms and conditions of loanagreements or security indentures; and

·                  The interim financial statements contain adequate and appropriatedisclosures.

xiv)                Ensure that the external auditorscommunicate certain required matters to the Committee.

#### **B.****                     ExternalAudit**

i)                            Review the professional qualification ofthe auditors (including background and experience of partner and auditingpersonnel).

ii)                         Consider the independence of the externalauditor and any potential conflicts of interest.

iii)                      Review on an annual basis the performanceof the external auditors and make recommendations to the Board for theircompensation, their appointment, retention and termination of theirappointment.

iv)                     Oversee the work of the externalauditors, including the resolution of disagreements between management and theexternal auditors regarding financial reporting.

v)                        Make sure to receive periodic reportsfrom the external auditors.

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vi)                     Review the external auditors’ scope andplan of the annual audit, as well as the approach for the current year in lightof the company’s present circumstances and changes in regulatory and otherrequirements.

vii)                  Annually, or more frequently as may berequired, consult with the external auditors, without the presence ofmanagement, as to internal controls, the fullness and accuracy of the financialstatements, any significant difficulties encountered during the course of theaudit or access to required information, the quality of financial personnel,the level of co-operation received from management any unresolved materialdifferences of opinion or disputes.

viii)               Discuss with the external auditor any auditproblems encountered in the normal course of audit work, including anyrestriction on audit scope or access to information.

ix)                       Discuss with the external auditor theappropriateness of the accounting policies applied in the company’s financialreports and whether they are considered as aggressive, balanced orconservative.

x)                          Approve all audit engagement fees andterms as well as reviewing policies for the provision of non-audit services bythe external auditors and, when required, the framework for pre-approval ofsuch services.

xi)                       Ensure the company has appropriatepolicies regarding the hiring of audit firm personnel for senior positionsafter they have left the audit firm.

#### **C.****                     InternalControl**

i)                            Evaluate whether management is settingthe appropriate tone at the top by communicating the importance of internalcontrols and ensuring that all individuals possess an understanding of theirroles and responsibilities.

ii)                         Understand the controls and processesimplemented by management to ensure that the financial statements derive fromthe underlying financial systems, comply with relevant standards andrequirements, and are subject to appropriate management review.

iii)                      Satisfy itself as to the adequacy ofcompany’s review procedures regarding disclosure of other financialinformation.

iv)                     Gain an understanding of the currentareas of financial risk and how these are being handled by the management.

v)                        Focus on the extent to which managementreviews computer systems and applications, the security of such systems andapplications, and the contingency plan for processing financial information inthe event of a systems breakdown.

vi)                     Gain an understanding of whether internalcontrol recommendations made by external auditors have been implemented bymanagement.

vii)                  Ensure that the external auditors keepthe Audit Committee informed about fraud, illegal acts, deficiencies ininternal control, and any other matter deemed appropriate.

viii)               Establish procedures for (1) the receipt,retention and treatment of complaints received by the Company regardingaccounting, internal accounting controls or auditing matters, and (2) for theconfidential, anonymous submission by Company employees of concerns regardingquestionable accounting or auditing matters.

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#### **D.****                     Corporate governance**

i)                            Review the effectiveness of the systemfor monitoring compliance with laws and regulations and the results ofmanagement’s investigation and follow-up (including disciplinary action) on anyfraudulent acts or accounting irregularities.

ii)                         Periodically obtain updates frommanagement, general counsel, and tax director regarding compliance.

iii)                      Be satisfied that all regulatorycompliance matters have been considered in the preparation of thefinancial statements.

iv)                     Review the findings of any examinationsby regulatory agencies.

v)                        Ensure that a Code of Ethical Conduct isformalized in writing and that all employees are aware of it.

vi)                     Review periodically the content of theCode of Ethical Conduct and make sure employees are informed of amendments.

vii)                  Evaluate whether management is settingthe appropriate tone at the top by communicating the importance of the Code ofEthical Conduct and the guidelines for acceptable business practices.

viii)               Review the program for monitoringcompliance with the Code of Ethical Conduct.

ix)                       Periodically obtain updates frommanagement and general counsel regarding compliance.

#### **E.****                       OtherResponsibilities**

i)                             Meet with the external auditors andmanagement in separate executive sessions to discuss any matters that the Committeeor these groups believe should be discussed privately.

ii)                          Ensure that significant findings andrecommendations made by the external auditors are received and discussed on atimely basis.

iii)                       Review, with the company’s counsel, anylegal matters that could have a significant impact on the company’s financialstatements.

iv)                      Review the policies and procedures ineffect for considering officers’ expenses and perquisites.

v)                         If necessary, institute specialinvestigations and, if appropriate, hire special counsel or experts to assist.

vi)                      Perform other oversight functions asrequested by the full Board.

vii)                   Regularly update the Board of Directorsabout Committee activities and make appropriate recommendations.

viii)                Ensure the Board is aware of matters thatmay significantly impact on the financial condition or affairs of the business.

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ix)                        Prepare any reports required by law orlisting rules or requested by the Board, for example a report on the AuditCommittee’s activities and duties to be included in the section on corporategovernance in the Annual Report.

x)                           Prepare and review with the Board, in themanner the Committee deems appropriate, an annual performance evaluation of theCommittee and its members, comparing its performance with the requirements ofthis charter.

xi)                        Review and update the Committee charterannually.

xii)                     Discuss any changes required to be madeto this charter with the Board and ensure the charter and any such changes areapproved by the Board.

Revised and approved bythe Board of Directors on February 28, 2006.

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**SCHEDULE E**

# **MANDATE OF THE CORPORATE**

# **GOVERNANCE, NOMINATING ANDHUMAN**

# **RESOURCES COMMITTEE**

The Corporate Governance, Nominating and HumanResources Committee (the “Governance Committee”) of Æterna Zentaris Inc. (the “Corporation”)is a committee of the Board of Directors of the Corporation (the “Board”) whichassists the Board in developing the Corporation’s approach to corporategovernance issues, proposing new Board nominees, assessing the effectiveness ofthe Board and its committees, their respective chairs and individual directors.This committee also assists the Board in discharging its responsibilitiesrelating to executive and other human resources hiring, assessment,compensation and succession planning.

**1.**                                      COMPOSITION OF THE COMMITTEE AND OPERATION

The Governance Committee is composed of aminimum of three (3) members, a majority of whom qualify as independentdirectors, as determined by the Board. Members of the Governance Committee areappointed and destituted by the Board. The quorum at any meeting is a majorityof its members and meetings are held at least twice a year and as required.

The Chair of the Governance Committee developsthe agenda for each meeting of the Governance Committee in consultation withthe Chairman of the Board. The agenda and the appropriate materials areprovided to members on a timely basis prior to any meeting. The Chair of theGovernance Committee reports regularly to the Board on the business of theGovernance Committee.

The Governance Committee may, in appropriatecircumstances, engage external advisors and set and pay their compensation,subject to advising the Chairman of the Board thereof.

The Governance Committee annually reviews itsmandate and reports to the Board on its adequacy. In addition, it annuallyassesses both its own performance as well as that of its members.

**2.**                                      RESPONSIBILITIES

The Governance Committee has the followingresponsibilities:

**(a)**                                  Board of Directors

(i)                                     Monitoring the size and composition ofthe Board to ensure effective decision-making.

(ii)                                  Developing and reviewing the policies andprocedures for selecting directors by regularly assessing the qualifications,personal qualities, business background and diversified experience needed bythe Board and the Corporation’s requirements.

(iii)                               Identifying candidates qualified tobecome Board members and recommending nominees for election at the next annualmeeting of shareholders.

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(iv)                              Assisting the Board in determining Boardcommittee membership.

(v)                                 Making recommendations to the Board withrespect to directors’ compensation.

(vi)                              Reviewing periodically the mandates ofthe Board and its committees.

(vii)                           Developing and monitoring appropriateprocesses for the periodical performance assessment of the Board, Board committees,Board and committee chairs and individual directors.

**(b)**                                  Corporate Governance Matters

(i)                                     Reviewing corporate governance guidelinesapplicable to the Corporation, recommending to the Board any change(s) thatshould be made thereto and monitoring the disclosure of the Corporation’scorporate governance practices in accordance with applicable rules, regulationsand recommended practices.

(ii)                                  Developing for approval by the Board,monitoring and overseeing the disclosure of appropriate corporate governancestructures and procedures, including the identification of decisions requiringapproval of the Board and, where appropriate, measures for receiving feedbackfrom shareholders.

(iii)                               Developing for approval by the Board,monitoring and overseeing the disclosure of a Code of Ethical Conductapplicable to the Corporation’s directors, its Chief Executive Officer (the “CEO”),its financial officers, and its other officers and employees.

(iv)                              Reviewing the annual statement ofcorporate governance practices for inclusion in the Corporation’s ManagementProxy or Information Circular or Annual Information Form, in accordance withapplicable rules and regulations.

(v)                                 Developing and reviewing orientation andcontinuing education programs for directors.

(vi)                              Reviewing the policies with respect tothe use of privileged information and taking all reasonable measures to ensurethat such policy, and the calendar for prohibition or “black-out” periods, isprovided to each member of the Board and each officer of the Corporation and toensure the appropriate communication thereof to all employees, officers anddirectors of the Corporation.

**(c)**                                  Senior Management

(i)                                     Taking all reasonable measures to ensurethat appropriate processes are in place regarding succession planning for theposition of CEO and other members of senior management.

(ii)                                  Ensuring that the CEO has put into place,and monitoring, succession planning systems and policies for management,including processes to identify, develop and retain the talent of outstandingexecutives.

(iii)                               Assisting the CEO in the recruiting ofsenior management, the terms and conditions of their appointment, retirementand termination and make a recommendation to the Board.

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(iv)                              Annually reviewing and recommending tothe Board the goals and objectives that the CEO is expected to attain,assessing the CEO in light of these goals and objectives and recommending tothe Board the CEO’s compensation level and package.

(v)                                 Reviewing the evaluation of theperformance of the Corporation’s senior officers and recommending to the Boardtheir compensation.

(vi)                              Reviewing the report on executivecompensation for inclusion in the Corporation’s Management Proxy or InformationCircular as well as all other executive compensation disclosure, in order tocomply as best as possible with applicable rules and regulations.

**(d)**                                  Other Human Resources Matters

(i)                                     Taking all reasonable measures to ensurethat appropriate human resources systems and procedures, such as hiringpolicies, competency profiles, training policies and compensation structuresare in place so that the Corporation can attract, motivate and retain thequality of personnel required to meet its business objectives.

(ii)                                  Maintaining an assessment andcompensation philosophy that rewards the creation of shareholder value andreviewing such philosophy at least once a year and as required.

(iii)                               Making recommendations to the Board withrespect to incentive compensation plans, including security-based compensationplans.

Nothing contained in this mandate is intendedto expand applicable standards of conduct under statutory or regulatoryrequirements for the directors of the Corporation or the members of theGovernance Committee.

Adopted and approved by the Board of Directorson February 28, 2006.

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**SCHEDULE F**

**CODE OF ETHICAL CONDUCT**

Æterna Zentaris Inc. (“Æterna Zentaris”) and all of the directors,officers and employees of Æterna Zentaris and its subsidiaries (collectivelywith Æterna Zentaris, the “Company”) are committed to preserving the reputationof the Company for integrity and excellence and conducting the businesses andactivities of the Company honestly and ethically and in compliance withapplicable laws, rules and regulations.

Accordingly, the Board of Directors of Æterna Zentaris has adopted thisCode of Ethical Conduct, which applies to all directors, officers and employeesof the Company and its subsidiaries, including, but not limited to, ÆternaZentaris’ principal executive officer, principal financial officer, principalaccounting officer or controller and persons performing similar functions. ThisCode of Ethical Conduct is intended to meet the requirements for a code ofethics under the Sarbanes-Oxley Act of 2002 (and the related regulationsadopted by the Securities and Exchange Commission) and the applicableMarketplace Rules of The Nasdaq Stock Market, Inc.

This Code of Ethical Conduct does not summarize all of the Company’spolicies. You must also comply with the Company’s other policies which are setforth elsewhere. In addition, this Code of Ethical Conduct reflects generalprinciples of conduct and does not anticipate or cover in detail every topic orsituation. If you have a question about anything covered in this Code ofEthical Conduct or if you are unsure about whether some action would beconsistent with this Code of Ethical Conduct, you agree to ask the Head ofLegal Affairs of Zentaris GmbH or the Corporate Secretary of Æterna Zentaris(the “Compliance Officer”). Similarly, if you should encounter a situation inwhich you are unsure what to do, you agree to tell the Head of Legal Affairs ofZentaris GmbH or the Compliance Officer and ask for help.

**Policies and Practice**

***General Conduct - Conflicts of Interest***

You should act ethically, honestly and with integrity. Your duty to actethically, honestly and with integrity includes avoiding actual or apparentconflicts of interest between your personal, private interests and theinterests of the Company, including using your position to receive improperpersonal benefits. This obligation applies to both business relationships andpersonal activities. A “conflict of interest” exists whenever your interests(financial or otherwise) interfere or conflict in any way (or even appear tointerfere or conflict) with the Company’s interests. A conflict of interest canarise when you take actions or have interests that may make it difficult toperform your work for the Company objectively and effectively. Conflicts ofinterest may also arise when you, or members of your family, receive improperpersonal benefits as a result of your position with the Company, regardless offrom where those benefits are received.

You also owe the Company a duty to advance its legitimate interests whenthe opportunity to do so arises. You are prohibited from (i) taking foryourself personally opportunities that properly belong to the Company or arediscovered through the use of the Company’s resources, property, information oryour position with the Company; (ii) using corporate property, information(confidential or otherwise) or position for personal gain; or (iii) competingwith the Company. You should conduct your personal affairs so that there can beno unfavorable reflection on the Company, either express or implied.

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***Compliance withLaws, Rules and Regulations***

In performing your duties on behalf of the Company, you must comply withall applicable governmental laws, rules and regulations, as well as the rulesand regulations of any stock exchanges and quotation systems on which ÆternaZentaris’ securities are listed.

***Public Disclosure - Confidentiality of Non-PublicInformation***

As a public company, Æterna Zentaris must provide full, fair, accurate,timely, and understandable disclosure in reports and documents that ÆternaZentaris files with, or submits to, the Securities and Exchange Commission orother regulators and in other public communications by Æterna Zentaris.

Consequently, the Company’s books, business records, accounts andfinancial statements must be maintained in reasonable detail, must appropriatelyreflect the Company’s transactions and must conform both to applicable legaland regulatory requirements, including, if applicable, maintaining thefinancial and accounting records in accordance with generally acceptedaccounting principles, and to the Company’s system of internal controls.Unrecorded or “off the books” funds or assets should not be maintained unlesspermitted by applicable law or regulation.

In addition, all employees, officers and directors of the Company areexpected to comply with the Company’s disclosure controls and procedures toensure that material information relating to the Company is timely recorded,processed, summarized and reported in accordance with all applicable laws,rules and regulations. You must ensure that all information or data that youreport to management is accurate and honest, and you must fully and accuratelycomply with all audits, requests for special record keeping or retention ofdocuments, documents or other material from or on behalf of the Company’s auditorsor the Company’s management.

You must also take all reasonable measures to protect theconfidentiality of non-public information about the Company and its customersobtained or created in connection with your activities and prevent theunauthorized disclosure of such information unless required by applicable lawor regulation or legal or regulatory process.

**Compliance with this Code of Ethical Conduct**

All employees, officers and directors of the Company, regardless oflevel or seniority in the Company, have a duty to review, understand and adherestrictly to the guidelines set forth in this Code of Ethical Conduct.

The Company is committed to holding all employees, officers anddirectors accountable for adherence to this Code of Ethical Conduct.

**Duty to Report Violations of thisCode of Ethical Conduct - No Retaliation**

The Company recognizes that employees may be reluctant in reportingcertain types of potential issues relating to violations of the Code of EthicalConduct. It is for that reason, in addition to those enumerated above, that theCompany has selected an independent third party supplier to provide aconfidential and anonymous communication channel for reporting concerns aboutpossible violations of the Code of Ethical Conduct as well as financial and/oraccounting irregularities or fraud.

All inquiries will be transmitted to the Chair of the Audit Committeeand handled promptly and discreetly. Anonymity and confidentiality will bemaintained insofar as is possible. The Company employees will not be penalized,dismissed, demoted or suspended and no retaliatory action will be taken againstthem for reporting or inquiring in good faith about potential breaches of theCode of Ethical Conduct, or for seeking guidance on how to handle suspected breaches.

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Details, on how to access this reporting service or how to contact theCompliance Officer or the Subsidiaries Legal Department, are available onÆterna Zentaris’ Web site at www.aeternazentaris.com under sectionInvestors/Governance.

**Disciplinary Actions**

The Company is committed to the appropriate, prompt investigation andfollow-up of any violation or suspected violation of this Code of EthicalConduct. Reports of violations will be investigated.

As far as legally possible, violations of this Code of Ethical Conductmay result in disciplinary measures, including, depending on the individualcircumstances, the level of involvement and knowledge and the severity of theviolation, (i) warning and/or reprimand; (ii) demotion; or (iii) termination ofthe employment.

In addition, violations of this Code of Ethical Conduct may alsoconstitute violations of law and may result in civil and criminal penalties foryou, your supervisors and/or the Company.

**Waivers of any Provision of this Code of Ethical Conduct**

Any request for a waiver of any provision of this Code of EthicalConduct for a director, officer or employee of the Company must be in writingand addressed to the Compliance Officer. The Board of Directors of ÆternaZentaris must approve any waiver with respect to this Code of Ethical Conductthat involves a director or an executive officer of Æterna Zentaris. Waivers ofany provision of this Code of Ethical Conduct for an officer or employee of theCompany (other than a person who is a director or executive officer of ÆternaZentaris) may be made by the Compliance Officer.

Æterna Zentaris is required to publicly disclose any waivers granted toa director or executive officer of Æterna Zentaris, along with the reasons forsuch waivers, in accordance with the provisions of the Securities Exchange Actof 1934, as amended, and the relevant rules, if any, of any stock exchanges andquotation systems on which Æterna Zentaris’ securities are listed.

**Amendments to this Code of Ethical Conduct**

The Board of Directors of Æterna Zentaris may update or otherwise amendthis Code of Ethical Conduct. When there are material changes, the Company willprovide each director, officer and employee of the Company with an updated copyof the Code of Ethical Conduct.

Adopted and approved by the Board of Directors on March 29, 2004 andamended by the Board of Directors on November 3, 2004, December 13, 2005 andMarch 2, 2007.

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